Nucor Steel Corp. case study

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For the purposes of this case analysis of Nucor Corporation, the steel industry is composed of all steel making companies in the United States (US). Although the case study did not give much information on global steel competition, this group would also include foreign-owned steel companies operating in the US. It is important to note, that to narrow this category the analysis could also be limited to address only the fourteen companies tracked by Standard & Poor. It is apparent from the case study that larger steel corporations are the issue of concern. Therefore, this industry includes the giant, fully- integrated steel mills of U.S. Steel and Bethlehem Steel and the smaller mini-mills that produce an increasingly significant niche product. Information on the global steel industry will be included in the recommendations portion of this case study.

The analysis supports the conclusion that the US steel industry reached maturity in the 1990's but new technology allowed the industry to begin an era of new growth. The global steel industry was much younger. As lesser developed nations began to enter the global market, they were better equipped with newer manufacturing facilities. US steel companies were still using technology that was designed in the early 1900's. The technological disadvantage almost forced US steel makers out of business. Steel producers in other countries were using new technology that allowed unit prices to be significantly reduced. There is also evidence of foreign governments subsidizing their steel companies. This allowed foreign companies to sell steel in the US at below production costs.

The industrialized world will always have a need for steel. Steel is used in bridges, skyscrapers, automobiles, eyeglasses, spacecraft and medical instruments, just to name a few products. In the foreseeable future it is very unlikely that steel will be replaced by another material. However, the steel industry depends on operations at near max capacity to be cost efficient. The technological advances in steel production throughout the world have caused capacity to far outreach demand. This excess supply has forced steel producers to cut back production and has consequently increased costs. The increased costs are not compatible with current supply and demand prices, and have forced most steel companies to take losses in the last decade and even file for bankruptcy. Although production is not declining, as might be expected; it is only a matter of time. Production must decrease in order to match the demand.

The growth curve will reflect small increases in the past twenty to thirty years as new technological advances have seen higher capacity at lower costs. The demand for steel products is also closely tied to both the domestic and international economy. When financial times are good in the US there has been a parallel increase in the need for new construction and other consumer products. This demand has translated into increased use of steel products. There is room for further investigation in product life-cycle areas that would be applicable to niche products. Although the industry appears to be at its apex, there are certain products that, if given a deeper look, would show a profitable potential.

The following table shows the limited data presented in the case for US industry production. Unfortunately this data does not reflect revenue, which is a critical indicator of the profitability of the industry.

Large mergers and acquisitions in the global steel industry show a high competition for market share. The economies of scale created by these mega-companies combined with new technology will see a significant shakeout in the market leaving only a few low-cost producers.

The next issue to investigate is the importance of technology in this industry. Technology is a major factor. It is myth that steel making is a blue collar industry that has not changed since the industrial revolution. On the...
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