Nucor Corp and the US Steel Industry - Term Paper Example

Task: Case study for Nucor Steel Company Case studies bring interesting, real-world circumstances in the study of business fields. Managers make different decisions in their companies, and each decision has a direct influence in revenue, costs, and profits. In analyzing the case study of Nucor steel company, different central firm issues, firm goals, the constraints to improving the firm and the relevant alternatives to counter the problems are addressed. To grow in steel market, metal producers are increasingly expanding territories, not only to manage input costs, but also to secure access to strategic raw materials (Michael et al 13). With improving economies’ growth is expected to boost desire for many to purchase the product in the medium term. Steel producers and mini-mill companies are situated in the midst of a very competitive environment in both domestic and global scale, which adversely affects their profitability. This competition among steelmakers is to capture a significant portion of the steel market in light of the fact that, the global supply of steel far exceeds the demand for steel products (Thompson 207). The first competitive forces impacting steelmakers is the force to drive down the profitability of steel industry, steelmakers are primarily affected by the abundant steel supply versus demand, which depresses the market price of steel as a commodity. Competition among steelmakers is to lower product prices in order to capture a significant portion of potential customers. Secondly steel producers are adversely impacted by the entry of foreign players into the domestic steel market that are able to advantage of lower labor costs in the country. The influx of cheap imports from foreign steelmakers stiffens the existing price competition among rival steel producers hence lowering prices of steel imports; dragging down steel market prices. Lastly, steel producers are more vulnerable to the increasing cost of raw materials. This rising cost of materials has led to increase in the cost of production making it difficult for them to be price competitive. The difficult in product differentiation in the steel commodity market makes it necessary for min-mills to be able to compete with their rivals based on price, that is; pricing and market niche (Hitt, Ireland & Hoskisson 33). The driving forces in the steel industry; the technology evolution which is a change in the steel making technology has revolutionized the world’s steel industry. The use of COREX technology in the production of steel has increased profit and its environmental friendly. Market growth has a huge impact in the development of the steel industry, profitability, strategies and efficiencies. The current unknown surrounding the US economy and crisis in the Euro zone may affect the performance of steel industry in the short run. Market and competition is a factor to consider in the long-run of the industry. New innovative areas such as advanced computer systems, extensive use of sensors, physical models and artificial intelligence have been designed and incorporated at all stages of the manufacturing process (Crompton & Lesourd 79). The use of renewable energy has brought high profits due to the low cost of production as opposed to when using fossil fuel source. The economy greatly affects the steel industry, where it my either be favorable or unfavorable. According to Ravish (35), he argues, “steel prices are of late sensitive to ever changes in global demand, which are governed by global and local economy.” The supply for finished and unfinished steel products are strongly desired with many domestic and foreign firms participating, resulting to a high competitive environment; companies initially compete on both price and service. Economical outlook whereby steel industry is the backbone of modern society, considering that steel is of many uses be it construction, transport or electricity appliances. In the third quarter of 2012, US GDP grew by 2%, which is above the second quarter growth of 1.3 percent. This meant that the personal consumption picked up in the quarter, led by consumer buying of durable goods, which hints at consumer optimism to make large purchase (Eric et al 25). The steel industry has a high potential in making massive profit in future. Although due to weak microeconomic factors and falling prices of steel scrap, the revenue of the segment fell and capacity utilization decreased to 50 percent in 2009, the revenue for the segment recovered and capacity utilization was at the level of 70 percent in 2011. The revenue for the segment is approximated to increase by CAGR of 2.3in the e year of 2012 and beyond. According to Ravish (7), “Steel Mills utilization capacity for Nucor has actually improved from low level attained of 46 % in 2009 to 75% in 3Q 2012.” They expect this trend to continue and expect capacity utilization to reach the pre recession level of 84 percent by the end 0f 2017, driven by increased domestic demand of steel products (Brian 32). It is advisable for Nucor to continue expanding and constructing of more DRI plants because it will generally improve the profit margin of the company. The average prices for steel mills and steel products segment are projected to rise by a CAGR of 2.08 % and 2.2% between year 2012 and 2017. This is facilitated by the recovery in the U.S. manufacturing and non-residential construction sector. These facts show that in expanding the steel industry will improve the company’s profitability. There are several issues, which Nucor’s management needs to address for the betterment of high profits and good working environment. To better, integrate their supply chain of their manufactured goods. All efforts of distribution are directed towards improving supply chain logistics and the end customers (Crompton & Lesourd 20). It should decrease in raw material cost since around 62% of steel productions are due to raw materials, whereby the company would have to develop alliances with other companies to decrease cost of production. The management should develop a better exportation strategy by going abroad thus to help diverse market and production. The management needs reconstruction so that decisions can be made quickly immediately. It should combat the influx of imported steel to the US market approaches e.g. diversification, lower cost. To address future shortage and higher price of the energy and finally the management need to address current and future concern on environmental care and protection. Dan DiMicco should consider the idea to diversify Nucor, this strategy would provide Nucor with the fast and most effective way to compete and be the strongest leader worldwide in the steel industry. This means that Dan will have to develop alliances with other countries for exportation. The strategy of Nucor going abroad has been slow, weak and based on joint venture, rather than being strong in going abroad; thus does not match very well with the risk and opportunities of the own industry. In conclusion steel industry faces a high production of steel on a global scale, creating a war for steel as well as steel pumping into the U.S. market, which has diminished profit. For Nucor to maintain and continue to gain profits in the future they must identify areas to improve technology to lower production costs and increase throughput. Nucor constitutes a very great threat; this is the cheaper steel from bigger and less cost steel production areas. To counter this threat, Nucor depends highly on the government protection. Nucor has operated with better margins than many of their competitions. The reason why Nucor is the most successful steel producer in comparison with its competitor are its lower production cost, positive work force and a solid brand in the industry to compete at the level, innovation, creativity and autumn. Works Cited Brian, K., “Nucor Corp. and the U.S. Steel Industry.” Strategic Management, 2000. Print Eric D., Brian I., Brian, Mei Dong, Global Metals Outlook: Manufacturing Resilience, An Economic Unit Research program. 2012. Print Hitt, M, Ireland, R & Hoskisson, R. Strategic Management: Competitiveness and Globalization, Southwestern Publishing.2000. Print Michael Elliott, Anjani Agrawal, Carlos Assis and Bob Stall, Global Steel; A new World, A New Strategy 2013. Ravish Sharma, Basic materials- iron and steel. Henry Tippie School of Management. 2012. Print Read More