Nucor Analysis

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1 Devdatta Bhattacharya, Section B Nucor at a crossroads Arena:     Nucor has been very successful with its existing steel minimills, achieving consistent profits and maintaining worker productivity The steel industry is suffering from significant overcapacity; while total US capacity alone stands at about 133 million tons of production per year, the market consumed only 70 million tons of steel in 1986, leaving over 60 million tons of idled capacity The low-end structural products market is saturated with numerous small minimills competing against each other in a stagnant or shrinking market Nucor's only option for continued growth is to invest in new technology, an unproven thin-slab cast plant that would allow it to enter the market for flat sheet steel with a low minimum efficient scale and marginal cost of production Cost Advantage:  Exhibits 12A and 12B of the case present information on costs and profitability for the production of hot and cold rolled sheet as produced by the proposed thin-slab minimill and by the integrated mills, the only current producers of flat-rolls. Table 1: Construction Costs for Flat-Rolled Product Plants Type of sheet Hot-rolled Cold-rolled Thin-slab Minimill $236 $450 Modernized Integrated: $451 $675 % Savings with Minimill: 48% 33% Table 2: Comparative Operating Data for Flat-Rolled Product Plants Thin-slab Minimill Cost per ton Revenue per ton Profit contribution per ton HR $225.00 $306.50 $81.50 CR $283.00 $390.50 $107.50 Modernized Integrated HR $261.50 $326.00 $64.50 CR $349 00 $454.50 $105.50 lJnmodernized Integrated HR $300.00 $325.00 $25.00 CR $403.00 $453.00 $50.00   So, the costs of introducing new capacity in the form of thin-slab minimills is significantly lower than in form of an integrated mill with savings of 48% or 33%, depending on the type of sheet (hot-rolled or cold-rolled) Advantage of

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