Our presentation of Case 2 for Nucor Steel

1. Kristin DeSouza
Travis Jernigan
Nicholas Morrison
Sujan Patel
Oksana Seeley

2.  Largest Steel Producer in the US

3.  Largest Steel Producer in the US
 Fortune 500 Rating

4.  Largest Steel Producer in the US
 Fortune 500 Rating
 Unconventional

5.  Largest Steel Producer in the US
 Fortune 500 Rating
 Unconventional
 Use of electric arc furnaces and mini mills

6.  Largest Steel Producer in the US
 Fortune 500 Rating
 Unconventional
 Use of electric arc furnaces and mini mills
 Minimal management layers

7.  Largest Steel Producer in the US
 Fortune 500 Rating
 Unconventional
 Use of electric arc furnaces and mini mills
 Minimal management layers
 200 operating facilities

8.  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

9.  Origins traced to 1905

10.  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

11. Low threat of
new entrants
MATURE INDUSTRY
WELL ESTABLISHED
COMPANIES
CONSOLIDATION OF
FIRMS IN US
EXIT OF MAJOR FIRMS

12. Low threat of
substitute
products
INCREASING DEMAND FOR
STEEL AND STEEL
PRODUCTS
WELL ESTABLISHED MAJOR
CUSTOMERS
LARGE MARKET SIZE
DOMESTIC AND
INTERNATIONAL
CUSTOMERS

13. High
bargaining
power of
consumers
OPPORTUNITY TO CAPITALAZE ON THE
COST LEADERSHIP
OPPORTUNITY TO CAPITALIZE ON QUALITY
CONSISTENCY AND VARIETY OF PRODUCTS

14. ALLOWS FOR HIGH LEVEL OF SUPPLIER-SELLER
COLLABORATION
COMPETITION DRIVES DOWN THE PRICE
LOWERS SHIPPING COSTS
High
bargaining
power of
suppliers

15. Low threat of
new entrants
Low threat of
substitute
products
High
bargaining
power of
consumers
Intense
Industry
Rivalry
High
bargaining
power of
suppliers

16.  Economical

17.  Economic
 Political

18.  Economic
 Political
 Environmental

19.  Economic
 Political
 Environmental
 Technological

20.  Economic
 Political
 Environmental
 Technological
 Social

21. 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

22. 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

23. 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

24. 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

25. Social Pressures on Steel Manufacturers:
 Continuous pressure for “clean” production
 Growing number of “green” movement
 Pressure from environmental groups

26.  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

27. Low Cost Provider
• Commodity Nature for Pricing

28. Low Cost Producer
Market Price
– Low Cost

29. Low Cost Producer
Advanced
Technology
Market Price
– Low Cost

30. Low Cost Producer
Advanced
Technology
Market Price
– Low Cost
Plant
Efficiency

31. Low Cost Producer
Advanced
Technology
Market Price
– Low Cost
Plant
Efficiency
Employee
Satisfaction

32. Low Cost Producer
Advanced
Technology
Market Price
– Low Cost
Plant
Efficiency
Employee
Satisfaction
Cut Costs –
Even Higher
Management

34. Low Cost –
Increased
Market Share

35. Low Cost –
Increased
Market Share
Low Cost –
High Profit
Margin

36. Better
Low Cost –
High Profit
Margin
Technology
Low Cost –
Increased
Market Share

37. Better
Low Cost –
High Profit
Margin
Technology
Low Cost –
Increased
Market Share
Acquisitions –
Gain Market
Share

38. Better
Low Cost –
High Profit
Margin
Technology
Low Cost –
Increased
Market Share
Acquisitions –
Gain Market
Share
Value-Added
Products

39. Better
Low Cost –
High Profit
Margin
Technology
Low Cost –
Increased
Market Share
Acquisitions –
Gain Market
Share
Value-Added
Products
Leader in
Environmental
Performance

40. Better
Low Cost –
High Profit
Margin
Technology
Low Cost –
Increased
Market Share
Acquisitions –
Gain Market
Share
Value-Added
Products
Leader in
Environmental
Performance
American
Made

42.  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

43.  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)

44.  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

45.  Leadership
 Execution strategy

46.  Leading Market Position in North America

47.  Leading Market Position in North America
 Diversified and balanced product mix

48.  Leading Market Position in North America
 Diversified and balanced product mix
 Robust Production network

49.  Dependence on outside vendors for raw materials

50.  Dependence on outside vendors for raw materials
 Competition with International Imports

51.  Strategic acquisitions and expansions

52.  Strategic acquisitions and expansions
 Robust growth perspectives in the US steel market

53.  Intense competition

54.  Intense competition
 Greenhouse gas regulation

55.  Intense competition
 Greenhouse gas regulation
 Overcapacity in the global steel industry

56.  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

57. Steel shapes and steel products are considered
commodities
The Steel market is highly cyclical

58. Year Nucor US Steel Baosteel
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

59. 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

60. 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

61. 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)

62. 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

63. 2007 2008 2009 2010 2011
Nucor EPS
USS EPS
Nucor ROE
USS ROE
Nucor
Current
USS Current
Nucor D/E
USS D/E

64. 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

65. 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

66. 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
3.2 3.5 4.2 3.9 2.8
Current
USS Current 4.8 5.12 4.58 4.1 3.8
Nucor D/E
USS D/E

67. 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
3.2 3.5 4.2 3.9 2.8
Current
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%

68.  Rising Scrap Steel Costs

69.  Rising Scrap Steel Costs
 Costs have been rising since 2001

70.  Rising Scrap Steel Costs
 Costs have been rising since 2001
 Costs fluctuate frequently

71.  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

72.  Domestic Market Share
 United States Steel

73.  Domestic Market Share
 United States Steel
 Foreign imports

74.  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%

75.  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

76.  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

77.  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

78.  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

79.  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

80.  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

81.  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

82.  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

83.  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

84.  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

85.  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

86.  Nucor Corporation (2014, October 28). Retrieved October 28, 2014, from
http://www.nucor.com/
 Vehicle Uses. (n.d.). Retrieved November 22, 2014, from
http://www.drivealuminum.org/vehicle-uses
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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
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 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