Nucor Steel Case Study
Table of Contents
Issue #1
Percentage use of Production Capacity
Nucor steel has the largest production capacity capability in North America. However, they have some deficiencies in this area in that in 2010 they utilized just 70 percent of capacity, though it increased in 2011 it was still just 74 percent. Gaining greater production efficiency will reduce costs and in turn increase the profitability of the company.
Issue #2
Rising Scrap Metal Prices
Nucor maintains its competitive advantage through its low cost production, and their use of electric arc furnaces and recycled scrap metals to produce steel. Prices for scrap steel was not higher than $137 until 2004, and reached a peak of $438 in 2008 before the economic recession hit. In 2009 and 2010 prices were $303 and $351 respectively, and then in 2011 hit an all-time high of $439. With their per unit cost structure relying heavily on these scrap steel prices, their ability to achieve greater profitability is reduced. Nucor needs to find a way to off-set these rising prices in order to maintain its low cost strategy.
Issue #3
International Competition and Foreign Subsidies
US producers of steel and steel products have fallen victim to aggressively competitive pricing from international firms. In 1999 the US government determined that six countries were indeed dumping stainless steel into the US market. Half of those countries governments were facilitating this process by providing unfair subsidies to offset the firm’s losses from selling at below market prices. In 2001, the Bush administration installed a 30 percent tariff on those countries found guilty of illegal dumping. This same issue is still prevalent today as China has been accused of doing the same thing. They have significantly lower prices than American firms due to the fact that China has been devaluing their currency in order to make exports unfairly cheaper. The US government must intervene and install another
Issue #1
Percentage use of Production Capacity
Nucor steel has the largest production capacity capability in North America. However, they have some deficiencies in this area in that in 2010 they utilized just 70 percent of capacity, though it increased in 2011 it was still just 74 percent. Gaining greater production efficiency will reduce costs and in turn increase the profitability of the company.
Issue #2
Rising Scrap Metal Prices
Nucor maintains its competitive advantage through its low cost production, and their use of electric arc furnaces and recycled scrap metals to produce steel. Prices for scrap steel was not higher than $137 until 2004, and reached a peak of $438 in 2008 before the economic recession hit. In 2009 and 2010 prices were $303 and $351 respectively, and then in 2011 hit an all-time high of $439. With their per unit cost structure relying heavily on these scrap steel prices, their ability to achieve greater profitability is reduced. Nucor needs to find a way to off-set these rising prices in order to maintain its low cost strategy.
Issue #3
International Competition and Foreign Subsidies
US producers of steel and steel products have fallen victim to aggressively competitive pricing from international firms. In 1999 the US government determined that six countries were indeed dumping stainless steel into the US market. Half of those countries governments were facilitating this process by providing unfair subsidies to offset the firm’s losses from selling at below market prices. In 2001, the Bush administration installed a 30 percent tariff on those countries found guilty of illegal dumping. This same issue is still prevalent today as China has been accused of doing the same thing. They have significantly lower prices than American firms due to the fact that China has been devaluing their currency in order to make exports unfairly cheaper. The US government must intervene and install another