Discuss the trends in the steel industry and how it may impact Nucor’s strategy.
Nucor Corporation started as a Nuclear Corporation of America. The latter was a highly diversified and marginally profitable company; the company products included instruments, rare hearths, semiconductors and construction. One of the company potential acquisitions was Coast Metals, a family owned producer of specialty metals. When the acquisition fell through, Nuclear hired one of the top engineers as a consultant to recommend other acquisition targets. Ken Iverson who was the president and CEO of the Nucor Corp. had strong technical skills and general management experience. The Nuclear Corporation of America ...view middle of the document...
Soon after, the Nucor became recognized as the Southwest Airlines of steel business and in the year 1985, Nucor become the seventh largest steel company in America with revenue of $758 million, six joist plants, and four state of the art steel mills that used electric arc furnaces to produce new steel products from recycled scrap steel. At the turn of the century Nucor was the second largest steel producer in the United States (Thompson, Strickland, & Gamble, 2009).
The trends in the steel industry are that there is further shortage of demand because of the weakness in the global economy. The steel industry situation is such a recovery in the construction industry and in the automotive industry. From the perspective of Nucor, this means that unless there is recovery in the construction and automotive industry it will be difficult to sustain a revenue growth and maintain corresponding profit levels.
Strategic Acquisitions: this strategy was to make acquisitions that would strengthen Nucor’s customer base on geographic coverage, and lineup of the product that were offerings but Nucor management concluded that growth minded companies like Nucor might well be better off purchasing existing plant capacity rather than building new capacity and could be bought at a lower price economically. Nucor had not made any acquisitions since the year 1990. For almost three years, no acquisitions were made, instead of making acquisitions Nucor was paying out millions of dollars to different companies (Thompson, Strickland, & Gamble, 2009).
The Drive for Plant Efficiency and Low Cost production: form the earliest day in the steel business the Nucor key point was to continue making capital investments to improve plant efficiency and keep production cost low (Thompson, Strickland, & Gamble, 2009).
Minimill Over capacity: In the year 1989, only one company, was capable of producing flat rolled steel using minimill technology. However, competing firms have started using similar technology and there were expected to be 10 new flat roll minimills online by 1997 adding 13 million tons of production capacity (Boyd, B.K., & Goves, S. 2000). Technology has not only driven the manufacturing side of the steel industry but it provides great enhancements for engineering and sales. Customers now receive detailed computerized models of their products with test statistics, and efficiency attributes because of that the sales department is able to directly communicate with these customers through internet usage.
Scrap Prices: Due to growing demand for scrap metal, its cost has become increasingly volatile in the 1990s. In 1996 prices reached $200 ton, and were expected to climb, but instead declined to $170- $180 ton by the end of 1997 (Boyd, B.K., & Goves, S. 2000). The scrap steel prices were driven by market demand and supply conditions. During the year 2004 to 2006 due to the efficiency of Nucor’s steel mills, energy costs remained less than 10 percent of revenue...