Nucor at a Crossroads Case Analysis
In 1986, three distinct segments defined the U.S. steel industry; integrated steel mills, mini-mills, and specialty steel makers. The integrated mills have the capacity to produce a maximum of 107 million tons of steel per year, mini-mills produced a maximum of 21 million tons of capacity a year, and the nation’s specialty steel makers could produce a maximum capacity of 5 million tons of stainless and specialty grades of steel. This leads to a total capacity of 133 million tons of production per year. In 1986, the market consumed only 70 million tons of steel, leaving 33 million tons unused. Nucor is at a crossroads. It faces a saturated market suffering from significant overcapacity. Nucor’s only opportunity for growth seems to be to expand into the production of flat sheet metal. However, to compete in that area, Nucor would need to invest in a very risky new technology, a thin-slab casting plant that, if successful, would allow Nucor to manufacture flat sheet metal with a low minimum efficient scale and a low marginal cost of production. This case will examine Nucor’s history, the impacts of entering the thin-slab casting business, the advantages Nucor would reap, and whether they should build the new thin-slab casting plant.
Looking at the business landscape of the steel industry, it is amazing to see how well Nucor has done considering the industry is so competitive and has relatively low profitability. Using Porter’s model, the threat of rivalry is high due to weak domestic demand, excess global capacity, a maturing industry, low switching costs, high exit barriers, rising operating costs (increasing raw material prices), and more than 5 comparable competitors. The threat of entry is low due to high barriers to entry (economies of scale have been achieved and high capital requirements), growth and profitability are modest at best, and most viable candidates are already present in the industry and