Nucor at a Crossroads
Background of the US steel industry
In 1986 total domestic steel consumption in US was 90 million tons, this comprised of 69 million tons of domestically produced steel and 21 million tons imported. Post 1979, the demand for steel started falling year on year due to stagnation of many steel-intensive industries, particularly construction and availability of substitutes such as aluminium, plastics and advanced composite. US Steel makers
| Mini mills
| Speciality steelmakers
| 107 million tons
| 21 million tons
| 5 million tons
| Sheets and Strip
| Wire and bars
| Stainless steel product
| Major players
| U.S. Steel, LTV steel, Bethlehem steel
| North star, Nucor, North western, Florida, Chaparral.
| Industry attractiveness: The steel products are classified majorly into 4 categories: Semi finished products, Sheet and strip, bars, wire and other structural shapes. The U.S. steel industry had major four products. Figure on the left shows the attractiveness of industry for these product based on industry size and growth potential. The flat sheet industry has the highest volume and growth potential, wire and structural product has the lowest growth potential and industry size. Semi-finished product have average growth potential and low market share and Bars have medium size and low growth potential
The U.S. steel industry had major four products. Figure on the left shows the attractiveness of industry for these product based on industry size and growth potential. The flat sheet industry has the highest volume and growth potential, wire and structural product has the lowest growth potential and industry size. Semi-finished product have average growth potential and low market share and Bars have medium size and low growth potential
Overall attractiveness of the steel industry
The industry is growing with the increase in the demand of the flat sheet, 38% of the flat sheet consumption comes only from automobile industry, which is growing due to macroeconomic factors. The construction industry is saturated and the demand for low end-products like bars, angles and wedges is not likely to increase. The alloy steel and special steel demand is driven by appliance and equipment manufacturing industry, which will grow at moderate rate. Porter five forces on overall steel industry
1) Bargaining power of suppliers: For scrap metal (Minimills) the suppliers power is low. 2) Bargaining power of Buyers: High as there were many alternatives available for customer. 3) New entrant: There are no barriers to entry; hence new players can enter easily but the investment is high for flat steel production which is a moderate barrier to entry. 4) Substitute: Substitute available for products such as automobile parts, but no substitute for product which requires strength such as construction industry equipment. Low 5) Competitors: High competition among the Minimills players to increase the market share with adopting new technologies and low for integrated industry there are only 3 major players.
Parameters Indicating Nucor is a successful company in year 1986 1. Healthy y-o-y Increase in Steel Production (18.95% annual growth) with greater efficiency (50% reduction in man hours per tonne during the same period) 2. Increased percent profit margin (Net profits / Sales) 6.14% in year 1986 compared to 5.3% in the year 1972 3. Sustained annual growth of 18% in company’s assets over prolonged period (14 years) 4. Market’s positive response to the performance of the company reflected by 647% of average change in share prices compared to 160% next best competitor during the same period. The analysis of actions taken by Nucor which helped the company become successful is as below The company invested heavily in its people and made the organization a more employee friendly company which in turn provided it the operational efficiency....
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