Rev. January 20, 1998
Nucor at a Crossroads
On December 7, 1986, F. Kenneth Iverson, chairman and chief executive officer (CEO) of Nucor Corporation, awaited a delegation from SMS Schloemann-Siemag, a leading West German supplier of steelmaking equipment, at his company’s headquarters in Charlotte, North Carolina. Iverson had to decide whether to commit Nucor to a new steel mill that would commercialize thinslab casting technology developed by SMS. Preliminary estimates indicated that the mill would cost $280 million, and that start-up expenses and working capital of $30 million each would push the total cost to $340 million, or nearly as much as Nucor’s net worth. Successful commercialization of thin-slab casting would let Nucor enter the flat sheet segment that accounted for half the U.S. market for steel. SMS’s compact strip production (CSP) process was, however, just one of several competing, commercially unproven thin-slab casting technologies, all of which might be leapfrogged by the turn of the century. As Iverson wrestled with these trade-offs, he reviewed the state of competition in the U.S. steel industry in general and Nucor’s position within it in particular.
In 1986, U.S. producers shipped 70 million tons of steel mill products. Subtracting exports of one million tons and adding imports of 21 million tons implied 90 million tons of domestic consumption of steel that year. Relative to the most recent peak year, 1979, domestic shipments had decreased by 30% and domestic demand by 22% (see Exhibit 1). The decline in demand derived from the stagnation of many steel-intensive industries, particularly automobile manufacture, efforts to use steel more efficiently and the emergence of substitute materials such as aluminum, plastics and advanced composites. There was general agreement in 1986, however, that the market would not decline further in the near term. Although the market for steel comprised several