1

Ghemawat P, Stander HJ (1992)

Nucor at crossroads
case
HBS 9-793-039

Strategic Decision:
Choice of New Technology

Steel Industry in the USA: 1986

Production 70 million tons. Consumption 90m. Imports 21m.
Exports 1m

Types of Producers

Integrated Steel Plants, Minimills, Specialty steel

Production mix in US (p. 15 Ex 2)

Flat sheets 52% (36 million tons)
Non-flat 48% (33 million tons)

Consumers: Automotive, Construction, Appliances &

Equipment [A, C and A&E], some via service centers and
distributors (downstream processing)
75% of flat-rolled sheets consumed by A, C and A&E

Quality parameters (p. 2)

Internal: metallurgical structure & strength

Surface quality important in Automobiles and Appliance
castings
Dependable delivery

INTEGRATED STEEL PLANTS

107 Million tons installed capacity
Minimum economic plant size 3 million ton +
Capital cost $1000+ per ton of installed capacity
Life span of 25-30 years

Use iron ore as input:

Sell to higher end consumers- Automotive and
Appliances

US Steel, Bethlehem, LTV major players

59% of ISP capacity;
49% of flat rolling capacity

Minimills
Key Players: Nucor, North Star, Florida Steel &
NSW
Use Scrap as input (contains impurities)
Capital cost $100+ / ton of installed capacity
Lifespan of 10 years
Minimum efficient scale: few hundred thousand tons
Require cheap electricity

Sell low end structural products

Like beams, flanges to construction industry

Absent from flat-rolled products

Impurities in scrap cause blowouts if cast thinly

Nucor
Competence & Strength
In quickly commissioning plant (~18 months)
New plants achieve 25% ROA within 5 years from
start

In improving manufacturing processes

Lower wage bill from fixed + bonus pay plan
Captive consumer Vulcraft

Upcoming expense at CSP,(Compact Strip

Production) decision time
$175 million on a JV with Yamato Kogoyo (YK) to
produce wide flange beams (p. 11)

Commercials in the CSP decision

ISP-CSP-MM (integrated steel plant, compact strip
production, mini mill)
capital cost per ton installed capacity $1000 / $ 300-400 / $ 100
Minimum efficient scale: Million/800+/ 100s tons
Plant life 25-30 yr / 10-12 yr / 10 yr

The tab:
Just CSP 280+30+30 = 340 (p. 13)
CSP +YK-Japan 100+250+60 = 410, till 1989. (p.
14)
Only YK => 175 (p. 11)
Nucor Reserves 185. (all $ million)

Technology uncertainty in CSP(2)

adoption
Alternative technology may forge ahead
Hazelett caster may succeed in producing 1
At present, Conveyor belts etc. wear out (moving
parts)

Mannesman-Demag also trying to produce 1

Whether pilot results will continue to hold in

manufacturing
Breakouts of one out of every ten casts- encouraging
Pilot ran for 7 min and produced 12 tons- can it
sustain?
Longer run is required to get slabs 100+ feet long.

Why consider CSP at all?

Main benefit of CSP over minimill

CSP produces of thinner slab (2) [MMs => thicker]

will require less reheating for further processing (cost

saving)
will make it easier to get closer to flats, where the money
is

Main benefit of CSP over ISP

Thinner slab with scrap as input (in place of Iron Ore)

Iron Ore processing much more complicated than
CSP/MM

Relatively thin (2) slab is produced with much lower

capital investment and much lower commitment
horizon

Strategic considerations in going with

CSP
RAW MATERIAL
MARKET
SEGMENT

SCRAP

Iron Ore (DRI)

Low End

Feasible, with
SMSs CSP (I)

Overkill to use purer iron

for low-end (II)

High End
(Auto +
Appliances)

Optimistic, due to
presence of
impurities (III)

Opportunity, when going

with SMSs CSP
technology (IV)

If Scrap is used as raw material, 2 flats being thinner than

current produce there will be some cost benefits (I). But the
produce may not satisfy the quality requirements of the high end
customers (III).
In IV, Nucor will be able to produce 2 flats with quality of ISPs
but with investment (and lock in period) lower than ISPs.

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Class question
How would one classify the following decisions
in terms of (scope) & (commitment):
- Going ahead or dropping the agreement with
NK-Japan
- Going ahead or stopping with the CSP
initiative?

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Framework for class question

(Commitment)

(Scope)

If Nucor keeps the

YK agreement
If Nucor backs out of
the YK agreement

(Commitment)
If Nucor decides not
to go ahead with
the CSP-SMS now
If Nucor goes ahead
with the CSP SMS
now

(Scope)

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Decision Alternatives
Yes- Go with
SMS-CSP

Yes, go with YK-Japan

No, drop YK-Japan

(I)

(II)

No, just
(III)
dont go with
CSP now

YK effort:
CSP effort:
YK and CSP together:
Saying No to YK:

(IV)