Nucor steel example essay

Percentage use of Production Capacity

Nucor metallic has the major production potential capability in North America. However , they have several deficiencies in this place in that this year they utilized just per cent of ability, though that increased in 2011 it was nonetheless just 74 percent. Gaining greater creation efficiency is going to reduce costs also increase the profitability of the organization. Issue #2

Rising Discarded Metal Rates

Nucor maintains their competitive benefit through its low cost production, and their utilization of electric arc furnaces and recycled recycle metals to make steel.

Rates for scrap steel was not higher than $137 until 2004, and reached a peak of $438 in 08 before the economic recession hit. Last season and 2010 prices were $303 and $351 correspondingly, and then in 2011 hit an all-time high of $439. With their per unit cost composition relying heavily on these scrap metal prices, their very own ability to achieve greater profitability is reduced. Nucor must find a way to off-set these types of rising rates in order to maintain steadily its low cost approach.

Issue #3

Intercontinental Competition and Foreign Financial assistance

US producers of steel and steel goods have suffered horribly to aggressively competitive costs from foreign firms. In 1999 the US government identified that 6 countries had been indeed throwing stainless steel into the US industry. Half of individuals countries government authorities were facilitating this process by giving unfair financial assistance to counter the firm’s losses coming from selling in below market prices. In 2001, the Bush operations installed a 30 percent tariff on these countries located guilty of illegal dumping. A similar issue is still prevalent today as China and tiawan has been accused of doing the same thing. They have substantially lower prices than American firms due to the fact that Chinese suppliers has been devaluing their foreign currency in order to make exports unfairly cheaper. The US government need to intervene and install

another contract price on Oriental steel items in order to guard its home-based producers coming from unfair international competition.

Advice

Nucor Corporation should certainly install an aggressive international expansion strategy to achieve many goals. It should be aimed at restoring its premier profitability which it had in 2007 and 2008 mainly by lowering costs. It will strive for attaining an increased market share in producing international marketplaces that were less effected by the recession in regions of Asia and the Middle section East. With this increased with regard to steel and steel goods, Nucor probably should not acquire extra capacity, rather they should help to make more efficient use of its current capacity together with the goal of reaching 85 percent using capacity. In an effort to reduce costs, Nucor should maximize its initiatives of reverse-integration in order to provide by itself with less costly raw materials and lower it’s per device production costs. International market expansion, elevated raw material production, and increasing herb capacity efficiency should be the key focus continuing to move forward as Nucor attempts to create a more cheap production procedure, increase revenues, grow its profitability, and continue to provide its stockholders with quarterly dividends and increased annual dividends mainly because it has for the past 40 years. Appendix A: Major Economic Attributes

Market Size and Progress Rate

How large is a industry and how fast is it growing?

The globally industry of crude steel production come to all-time levels with total production equaling 1, 559 million tons in 2010 and 1, 680 million plenty in 2011. Throughout the world production capability was about 2, 090 million plenty in 2011, which resulted in a utilization rate of 80 percent in 2011. The worldwide development of primitive steel is growing consistently seeing that 2000 irrespective of two significant periods of economic downturn and decreased require. According to the Community Steel Affiliation, the elementary steel development growth prices were 6. 2 percent from 2000-2005, 4. 5 percent by 2005-2010, and 4. 4 percent via 2010-2011. Range of Competitive Rivalry

Is a geographic place over which most companies compete local, regional, national, multinational, or global? A mixture of both countrywide and global

Primary National Rivals

US Steel

ArcelorMittal USA

Top rated Worldwide Rivals

ArcelorMittal Worldwide (Luxembourg)

Baosteel (China)

POSCO (South Korea)

Nippon Steel (Japan)

JFE (Japan)

Jiangsu Shagang (China)

Orde Steel (India)

Ansteel (China)

Gerdau (Brazil)

Severstal (Russia)

Wuhan (China)

ThyssenKrupp (Germany)

Evraz (Russia)

Has a occurrence in international markets progressively more important to a company’s long lasting competitive success? Yes, particularly in times of domestic economic downturn. In the recession of 2009-2011, metal demand in developed countries such as the US and Asia was significantly diminished. Nevertheless , demand for steel in growing regions just like India, China and the Middle East was exceeding local producer’s capacities. Thus, there exists significant chance to expand internationally and better utilize current production capabilities.

Specifically for Nucor, in 2007 they decided that intercontinental growth was obviously a necessity, and their strategy hinged on two elements: Opening foreign sales offices: 60 percent of Nucor’s current steel plant life were located on deep water access areas which allowed for easy access to international shipping and delivery areas with no significant increase in cost. Joint Ventures: Nucor began growing partnerships with reputable and successful international firms so that they can greater utilize their common competencies as well as allow Nucor to establish alone in foreign markets. Product Innovation

Is a industry categorized by fast product creativity and short product life periods? Not for the steel industry

Creativity is important but with the typical scale projects, it truly is in no way fast The steel industry is categorized by long product life cycles, simply methods of making have been altered in the extended history of the industry Essential is R&D and merchandise innovation?

R&D and creativity are extremely essential

Many major improvements in the past 6 decades have led to industry advancements that have save money and environmental impact significantly Are there any for you to overtake crucial rivals if it is first-to-market with next generation goods? Yes, any kind of new technology that could reduce costs and increase productivity will almost certainly enhance a industry’s competitive benefit Being first-to-market with fresh innovative creation methods can absolutely provide an opportunity to overtake rivals This is evident in Nucor’s rise to being one of the top steel producers in North America, their particular use of electric arc furnaces, thin piece casting procedure, and deprive casting technology gave all of them a significant increase when attempting to catch ALL OF US Steel and the US’s major steel producer Economies of Scale

Is definitely the industry characterized by economies of scale in purchasing, developing, advertising, delivery, or other pursuits? Yes, specially in manufacturing being a company may reduce its per device fixed costs with higher production ability Do companies with largescale operations have an important expense advantage above smallscale firms Yes, smaller sized firms are few and far between and during the 2000’s many had been bought simply by larger organizations in an attempt to enhance their total flower capacity, gain market share, and gain a stronger location in specific geographic areas Learning/Experience Curve Effects

Are certain industry activities characterized by strong learning and knowledge effects (“learning by doing) such that device costs drop as a provider’s experience in performing the activity builds? Yes, as the firm’s plant life operate, all their line workers become more plus more capable of executing the position, fixing potential problems, and generating ways to improveproduction Because the workers be a little more knowledgeable and experienced, they become more efficient and productive which lowers labor costs and increases total product available for sale and income Do any businesses have significant cost advantages because of their learning/experience in doing particular actions? Nucor comes with an advantage from this particular location because of their egalitarian company traditions where managers and on an hourly basis employees go over potential advancements and alterations on a regular basis Also, they are very decentralized and are ready to accept new ideas, Nucor really believes that their best source of knowledge to get potential improvements in manufacturing can be from the staff that are for the front type of the making process

Appendix B: PESTEL Analysis

Political Factors

The key political element that is impacting on the metallic industry pertains to the US industry and overseas competition Nucor and many other American steel corporations have become a huge hit to the US government they have been facing unfair competition from overseas firms, that they believed that several overseas steel producers were exercising illegal dumping of stainlesss steel and stainlesss steel products into the US marketplace In 03 of 99, the US Division of Business concluded that stainlesss steel companies in six countries had illegitimately dumped stainless in the US: Canada

South Korea

Taiwan

Italia

Belgium

South Africa

The governments in Belgium, Italia, and S. africa further facilitated this practice by providing subsidies that would cover revenue loss for businesses selling steel at fairly cut-off prices This is continue to an issue today as ALL OF US steel makers are facing similar competition from China, wherever most steel companies are federal government owned and operated, China has also devalued its own foreign currency in order to provide substantially lower prices Economic Conditions

The steel industry is relatively affected by economic conditions Since rates and percentage use of ability are dependant on market supply and demand forces, when the economy can be healthy, after that demand is definitely strong and steel companies can be rewarding. On the other hand, when the economy makes its way into a economic downturn, then demand is reduced greatly and the most firms cannot be profitable This can be evident while using economic downturns that occurred in the early 2000’s as well as in 2009-2011 when many firms found revenues and profits decrease dramatically Nucor saw revenue drop coming from 25, 187, 000 plenty in 08 to 18, 576, 1000 tons last season; and appropriately saw net profits drop from $1. 8 billion in 08 to a loss in $293 , 000, 000 in 2009 Sociocultural Forces

We have a limited effect of sociocultural makes with respect to the metallic industry You will have minor affect based on the expansion rate with the population, as with a more quickly growing inhabitants, the need for colleges, hospitals, tracks, and other community buildings will increase which will consequently increase with regard to steel and steel goods Technological Elements

The technical advances inside the steel industry have been groundbreaking over the years and possess provided other industries with valuable here is how to improve their own production facilities and features However , in recent times it has not provided for the emergence of numerous new industrial sectors stemming via those enhancements, nor has it provided significant value to society Environmental Forces

Growing fuel prices are harming steel corporations bottom line in that they cannot make the same amount of power as they could in previous years without elevating expenditures and raising all their per unit costs every single quarter Flower emission requirements are strictly enforced by EPA and the US authorities In the past 5 decades, the steel production market has made great strides in becoming more environmentally conscious and efficient Nucor has developed fresh techniques and technologies that provide a more environmentally responsible creation process Specifically their metal production initiatives in Brazil where they use a eucalyptus farm intended for the fuel in their blast furnace instead of coal, plus the eucalyptus farmville farm absorbs even more carbon dioxide in the atmosphere compared to the plant gives off and completelyneutralizes the effect of global warming Legal and Regulating Factors

Labor laws tremendously affect the steel industry, Nucor has couple of issues with these kinds of as they compensate their workers well over government requirements and industry uses Safety regulations are also a significant factor as conformity with OSHA and other security organizations in a requirement

Appendix C: Five Forces Analysis

Risk of New Entrants

Weakened

The costs associated with going into the metallic industry will be excessive and the threat of any company this is very limited Competition by Substitutes

Weak

Companies in industries that require steel and steel goods, can only use steel and steel items, as additional metals don’t possess the same metallurgical attributes like durability and strength required There may be some potential that different metals just like aluminum, titanium, tungsten and others could present a threat, but the many Nucor’s buyers need stainlesss steel Buyer Electricity

Moderate

Customers have the availability to shop different firms as price are the main deciding factor in the industry Seeing that prices and competitive benefits is mainly dependant upon cost and market source and demand forces, in that case customers have a modest ability to power another company’s, or even another country’s, cost against a specific supplier Dealer Power

Average

In previous years, Nucor have been at the mercy of rising raw materials prices But in modern times they have commenced an intense backward-integration strategy to begin making 6 million to several million a great deal of steel use with its metallic product manufacturing plants Their proceed to provide their own raw materials has greatly reduced their particular reliance about raw stainlesss steel suppliers in the middle of ever-increasing prices Rivalry

Solid

Home-based competition coming from US Stainlesss steel and ArcelorMittal USA is extremely fierce International competition via both European and Oriental firms is incredibly stout too Since benefits is determined typically by low costs and low prices, competition is a continuous price conflict

Appendix D: Drivers of Change in the Industry

Innovation of new production techniques

Creation efficiency

Efficiency of capacity use

Ability to reduce costs and thus lower prices

Globalization

New marketing strategies

Resiliency to changing economic and market circumstances

Diffusion of technical know-how around companies and countries Debt consolidation of businesses

Regulating influences and government plan changes

Appendix E: Current Strategy

In 2150, Nucor started out a five-part growth technique that included: New purchases

Fresh plant building

Continuing plant improvements and expense reduction efforts

Worldwide growth through joint ventures

Better control over raw materials

Their overall strategy includes all the above as well as being a cheap producer and low-price market leader in the steel industry Appendix Farrenheit: Competitor Analysis

Competitor Analysis Framework

Current Approach

ALL OF US Steel

Positioned because the long-time industry innovator

Their competitive benefit, if virtually any is based in brand power ArcelorMittal USA

Situated alongside ALL OF US Steel and Nucor in production capability and will serve

most of the same industries Competitive Benefits lies in their sales volume level and earnings

Aims

ALL OF US Steel

Due to significant losses both equally domestically and Serbia, tactical financial improvements should be expected ArcelorMittal USA

Currently suffering from profitable operations, only minor changes is going to take place in the near future Capabilities

US Metal

Strengths:

Brand awareness

Years of encounter

Weaknesses:

Unionized workforce

Net loss in recent years

ArcelorMittal UNITED STATES

Talents:

Foreign subsidiary of ArcelorMittal, therefore have know-how beyond US market Production capacity, product sales revenues, and profits

Weaknesses:

Lack of company awareness

Assumptions

US Steel

While the old guard, have controlled in the red in many years, and assume that they aren’t going anywhere and that the market will certainly turn in all their favor ArcelorMittal USA

With their overwhelming knowledge by international functions, and becoming a subsidiary of the largest solitary steel producer in the world, that they assume that their very own market share and drive for low costs will sooner or later prevail Proper Group Map

The above data displays the market positioning from the main three competitors in america steel creation industry. The dimensions of each ring is determined by the quantity of metallic products sent. All record data utilized is by 2011. Volume of steel goods shipped is extremely comparable, as well as the totalnumber of production plant life in the US is additionally very similar between your three. The biggest disparity can be on the net income axis wherever ArcelorMittal UNITED STATES led with $2. several billion in profit, Nucor earned $778 million, and US Metallic shows loss of $53 million. Weighted Competitor Durability Analysis and Key Success Factors

This chart specifics the strengths and weaknesses of every of the main three corporations in the US steel market based upon four crucial success factors

Appendix G: SWOT Research

Appendix L: Financial Examination

Net Profit Margin

Net profit margin reveals the percentage of after-tax revenue of sales, the graph and or chart above reveals the true effects of the economic recession that hit in the next quarter of 2008, as well as the slow restoration of the market since then. The marketplace is supposed to gain strength in 2012 and Nucor and its particular stockholders are hoping that forecast applies as they make an effort to reach their peak efficiency levels that they obtained in 2007-2008. Return on Invested Capital

Returning on spent capital is known as a measure of the return that shareholders happen to be earning in long-term put in monetary capital. This particular measure shows the way the economic recession effected Nucor’s investors and their general return about invested capital. 2011 offered a significant recurring in ROIC and Nucor will need to always trend this kind of measure upwards to meet investor expectations. Internal Cash Flow

Inner cash flow is actually a rough estimate of how very much cash a company’s business is producing and could have for potential dividend payments or capital expenditures. The interior cash flow assess is yet another rendering of how very much the global economic downturn of 2009 and 2010 effected Nucor and its capacity to continue its operations mainly because it had in previous years. Despite the radical reduction in their internal income, Nucor even now managed to pay out itsshareholders a dividend as it had for 156 successive quarters when also increasing the dividend payment paid to stockholders every year as 1973.

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