Nucor steel case 2

Kristin DeSouza

Travis Jernigan

Nicholas Morrison

Sujan Patel

Oksana Seeley

Largest Steel Producer in the US

Largest Steel Producer in the US

Fortune 500 Rating

Largest Steel Producer in the US

Fortune 500 Rating

Unconventional

Largest Steel Producer in the US

Fortune 500 Rating

Unconventional Use of electric arc furnaces and mini mills

Largest Steel Producer in the US

Fortune 500 Rating

Unconventional Use of electric arc furnaces and mini mills

Minimal management layers

Largest Steel Producer in the US

Fortune 500 Rating

Unconventional Use of electric arc furnaces and mini mills

Minimal management layers 200 operating facilities

Largest Steel Producer in the US

Fortune 500 Rating

Unconventional Use of electric arc furnaces and mini mills

Minimal management layers 200 operating facilities

100 people at corporate headquarters

Origins traced to 1905

Origins traced to 1905

Evolved through successive companies Reo Motor Company

Nuclear Corporation of America

Vulcraft-- the first whole steel company

Nucor Steel in 1971

Low threat of new entrants

MATURE INDUSTRY

WELL ESTABLISHED COMPANIES

CONSOLIDATION OF FIRMS IN US

EXIT OF MAJOR FIRMS

Low threat of substitute products

INCREASING DEMAND FOR STEEL AND STEEL PRODUCTS

WELL ESTABLISHED MAJOR CUSTOMERS

LARGE MARKET SIZE

DOMESTIC AND INTERNATIONAL CUSTOMERS

High bargaining

power of consumers

OPPORTUNITY TO CAPITALAZE ON THE COST LEADERSHIP

OPPORTUNITY TO CAPITALIZE ON QUALITY CONSISTENCY AND VARIETY OF PRODUCTS

High bargaining

power of suppliers

ALLOWS FOR HIGH LEVEL OF SUPPLIER-SELLER COLLABORATION

COMPETITION DRIVES DOWN THE PRICE

LOWERS SHIPPING COSTS

Low threat of new entrants

Low threat of substitute products

High bargaining

power of consumers

High bargaining

power of suppliers

Intense IndustryRivalry

Economical

Economic

Political

Economic

Political

Environmental

Economic

Political

Environmental

Technological

Economic

Political

Environmental

Technological

Social

Economic Downsides of Steel Industry:

• Increasing cost of steel scrap In year 2000 – 6.54% In year 2011 – 3.89% In year 2014 – 3.29%

• Tight profit margins In year 2000 – 6.54% In year 2011 – 3.89% In year 2014 – 3.29%

• Intense competition in US and Globally

• Labor and energy intensive industry

Political Pressures on Steel Manufacturers:

Increasing demands to be environmentally conscious

Taxes and fines imposed by the government since the steel industry has unfavorable environmental impact

Pressure to develop new technologies in order to move towards “green” production

Environmental Pressures on Steel Manufacturers:

Increasing number of environmental groups fighting against air pollution

Increasing pressure to have “clean” production

Increasing costs to comply with environmental laws

Technological Opportunities in Steel Industry:

Pressure to advance existing technology in order to cut costs/maintain market share

Increasing variety of products offered

Continuous pressure to maintain uniform consistency and quality throughout the different products offered

Social Pressures on Steel Manufacturers:

Continuous pressure for “clean” production

Growing number of “green” movement

Pressure from environmental groups

Mature industry

Highly cyclical, depending on ups and downs of the economy

Opportunity for increasing market share by purchasing existing companies

Labor intensive industry

Need for advanced technology

Low Cost Provider• Commodity Nature for Pricing

Low Cost ProducerMarket Price – Low Cost

Low Cost ProducerMarket Price – Low Cost

Advanced Technology

Low Cost ProducerMarket Price – Low Cost

Advanced Technology

Plant Efficiency

Low Cost ProducerMarket Price – Low Cost

Advanced Technology

Plant Efficiency

Employee Satisfaction

Low Cost ProducerMarket Price – Low Cost

Advanced Technology

Plant Efficiency

Employee Satisfaction

Cut Costs –Even Higher Management

Low Cost –Increased

Market Share

Low Cost –High Profit

Margin

Low Cost –Increased

Market Share

Better Technology

Low Cost –High Profit

Margin

Low Cost –Increased

Market Share

Better Technology

Low Cost –High Profit

Margin

Low Cost –Increased

Market Share

Acquisitions –Gain Market

Share

Better Technology

Low Cost –High Profit

Margin

Low Cost –Increased

Market Share

Acquisitions –Gain Market

Share

Value-Added Products

Better Technology

Low Cost –High Profit

Margin

Low Cost –Increased

Market Share

Acquisitions –Gain Market

Share

Value-Added Products

Leader in Environmental Performance

Better Technology

Low Cost –High Profit

Margin

Low Cost –Increased

Market Share

Acquisitions –Gain Market

Share

Value-Added Products

Leader in Environmental Performance

American Made

Innovation 1968 Darling Mill was one of the first plants of major

size in U.S to use electric arc furnace

Late 1980’s Crawfordsville plant was the first to employ a revolutionary thin slab casting process

Innovation 1968 Darling Mill was one of the first plants of major

size in U.S to use electric arc furnace

Late 1980’s Crawfordsville plant was the first to employ a revolutionary thin slab casting process

Low cost Low cost leadership strategy

Low cost per ton produced(allowed them to compete with foreign manufacturers (NBC business documentary)

Innovation 1968 Darling Mill was one of the first plants of major size in

U.S to use electric arc furnace Late 1980’s Crawfordsville plant was the first to employ a

revolutionary thin slab casting process

Low cost Low cost leadership strategy Low cost per ton produced(allowed them to compete with

foreign manufacturers (NBC business documentary)

Sound management Posted a dividend for 156 straight quarters Ken Iversen was a “Model Company President” Streamlined organizational structure

Leadership

Execution strategy

Leading Market Position in North America

Leading Market Position in North America

Diversified and balanced product mix

Leading Market Position in North America

Diversified and balanced product mix

Robust Production network

Dependence on outside vendors for raw materials

Dependence on outside vendors for raw materials

Competition with International Imports

Strategic acquisitions and expansions

Strategic acquisitions and expansions

Robust growth perspectives in the US steel market

Intense competition

Intense competition

Greenhouse gas regulation

Intense competition

Greenhouse gas regulation

Overcapacity in the global steel industry

Proven track record via acquisitions and Joint Ventures 1988 Yamato-Kogyo

Early 2000’s Harris Steel

2006-2011 Acquired several other facilities, mostly troubled at discount prices

Steel shapes and steel products are considered commodities

The Steel market is highly cyclical

Year Nucor US Steel Baosteel

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Year Nucor US Steel Baosteel

2000 310.9 (29)

2001 113.0 (2.45)

2002 162.1 .62

2003 62.8 (4.64)

2004

2005

2006

2007

2008

2009

2010

2011

Year Nucor US Steel Baosteel

2000 310.9 (29)

2001 113.0 (2.45)

2002 162.1 .62

2003 62.8 (4.64)

2004 1121.5 1135

2005 1310.3 910

2006 1757.7 1374

2007 1471.9 879

2008 1831.0 2212

2009

2010

2011

Year Nucor US Steel Baosteel

2000 310.9 (29)

2001 113.0 (2.45)

2002 162.1 .62

2003 62.8 (4.64)

2004 1121.5 1135

2005 1310.3 910

2006 1757.7 1374

2007 1471.9 879

2008 1831.0 2212

2009 (293.6) (1401)

2010 134.1 (482)

2011 778.2 (53)

Year Nucor US Steel Baosteel

2000 310.9 (29) 488.6

2001 113.0 (2.45) 418.2

2002 162.1 .62 697.6

2003 62.8 (4.64) 1139.2

2004 1121.5 1135 1527.2

2005 1310.3 910 2068.4

2006 1757.7 1374 2124.6

2007 1471.9 879 2076.9

2008 1831.0 2212 1054.8

2009 (293.6) (1401) 949.8

2010 134.1 (482) 2101.6

2011 778.2 (53) 1202.3

2007 2008 2009 2010 2011

Nucor EPS

USS EPS

Nucor ROE

USS ROE

Nucor Current

USS Current

Nucor D/E

USS D/E

2007 2008 2009 2010 2011

Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45

USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37)

Nucor ROE

USS ROE

Nucor Current

USS Current

Nucor D/E

USS D/E

2007 2008 2009 2010 2011

Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45

USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37)

Nucor ROE 29.4% 28.1% -3.8% 1.8% 10.7%

USS ROE 15.9% 43.1% 30.0% -12.5% -1.5%

Nucor Current

USS Current

Nucor D/E

USS D/E

2007 2008 2009 2010 2011

Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45

USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37)

Nucor ROE 29.4% 28.1% -3.8% 1.8% 10.7%

USS ROE 15.9% 43.1% 30.0% -12.5% -1.5%

Nucor Current

3.2 3.5 4.2 3.9 2.8

USS Current 4.8 5.12 4.58 4.1 3.8

Nucor D/E

USS D/E

2007 2008 2009 2010 2011

Nucor EPS $4.96 $5.99 $(0.94) $0.42 $2.45

USS EPS $7.44 $18.04 $(10.42) $(3.36) $(0.37)

Nucor ROE 29.4% 28.1% -3.8% 1.8% 10.7%

USS ROE 15.9% 43.1% 30.0% -12.5% -1.5%

Nucor Current

3.2 3.5 4.2 3.9 2.8

USS Current 4.8 5.12 4.58 4.1 3.8

Nucor D/E 29.4% 28.3% 28.9% 36.9% 35.7%

USS D/E 58.9% 64.2% 71.9% 96.9% 120.8%

Rising Scrap Steel Costs

Rising Scrap Steel Costs Costs have been rising since 2001

Rising Scrap Steel Costs Costs have been rising since 2001

Costs fluctuate frequently

Rising Scrap Steel Costs Costs have been rising since 2001

Costs fluctuate frequently

Year Cost of Scrap per Ton

2007 $278

2008 $438

2009 $303

2010 $351

2011 $439

Domestic Market Share United States Steel

Domestic Market Share United States Steel

Foreign imports

Domestic Market Share United States Steel

Foreign imports

Country Crude Steel Percentage

China 752 45.9%

Japan 118 7.2%

United States 95 5.8%

India 79 4.8%

Russia 76 4.6%

South Korea 75 4.6%

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign cost advantage

Russia, India, S. Korea

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Helps to offset cyclical nature of certain product sales

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Help to offset cyclical nature of certain product sales

Combat substitute threats

Mergers and Acquisitions To mitigate foreign competition cost advantage

Russia, India, S. Korea expansions

Lower labor costs and regulations

Thwart Supplier Power Acquisition of raw material suppliers

Vertical integration

Invest in Product Mix Diversification Help to offset cyclical nature of certain product sales

Combat substitute threats

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Vehicle Uses. (n.d.). Retrieved November 22, 2014, from http://www.drivealuminum.org/vehicle-uses

Robert C. Allen, "International Competition in Iron and Steel, 1850-1913, Journal of Economic History, (1979) 39#4 pp 911-37

David Jardini, "From Iron to Steel: The Recasting of the Jones and Laughlins Workforce between 1885 and 1896," Technology & Culture (1995) 36#2 pp 271-301

Etsuo Abé, "The Technological Strategy of a Leading Iron and Steel Firm, Bolckow Vaughan & Co. Ltd: Late Victorian Industrialists Did Fail," Business History (1996) 38#1 pp 45-76

Preston, Richard (1992). American Steel. Quill

Hoerr, John P. And the Wolf Finally Came: The Decline of the American Steel Industry (1988)

Hogan, William T. Minimills and Integrated Mills: A Comparison of Steelmaking in the United States (1987)

United States Steel Corporation. (n.d.).Retrieved November 20, 2014, from https://www.ussteel.com/uss/portal/home/investors/annualreports

Baoshan Iron & Steel Co., Ltd. (n.d.). Retrieved November 20, 2014, from http://www.baosteel.com/group_en/contents/2942/40191.html