What are the primary competitive forces impacting U.S. steel producers in general and the producers like Nucor that make new steel products via recycling scrap steel in particular? Please do a five-forces analysis to support your answer.

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14/11/2011

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Case 10: Nucor

Chatelain Pierre

Darcis Aurélie

Giliams Kévin

Larfaoui Wissem

M. Lambridis

Case 10: Nucor

  1. What are the primary competitive forces impacting U.S. steel producers in general and the producers like Nucor that make new steel products via recycling scrap steel in particular? Please do a five-forces analysis to support your answer.

        The primary competitive forces affecting the U.S. steel producers are greater production capacity from foreign countries (rivalry among competitors). The quality of steel produced is almost identical to competitors forcing producers to be price competitive with respect to demand and supply of certain steel parts. This gives consumers the option to choose the lesser priced steel products, which in turn can push higher priced steel manufacturers out of the market. Illegal dumping of low price stainless steel from countries such as Italy is another force that affects the market industry. The prices of the steel products are affected by the strength of foreign currencies compared to the U.S. dollar, which allows the foreign producers to manufacture their products below the costs of the U.S. Recycling scrap steel was a strategy initially used by Nucor. Nucor’s production process was cost efficient. They did not offer the perquisites and benefits many companies did which allowed them to place more dollars into their profit. In 2002, the Bush administration intervened to set tariffs that increases the price of foreign steel by 30 %, this to permit US steel company to compete fairly with these foreign competitors.  

        Nucor’s successful strategy is proven based on the five forces analysis. The plan was to recycle scrap steel and minimize the costs of production and labor. The ploy was to intentionally have low priced steel and drive competitors out of the market to gain a larger percentage of market shares by buying out smaller companies. The pattern consisted of Nucor buying companies that were in financial trouble, such as bankruptcy. Nucor dominated the market with its position as placing their facilities spread out across the U.S. Nucor’s perspective allowed them to capture more than 15 percent of the market, which left an intimidating presence in the industry. By adopting this recycle scrap steel strategy, Nucor eliminate steps in the production process and made scrap steel and energy its two best cost component. When Nucor decided to enlarge his set of products, that minimizes switching costs and permit to keep prices low. That meet customers’ requirements and through the multiplication of plants across and outside the country, that contribute to the ability of operating in a just in time inventory mode.

US steel market’s Porter 5 forces analysis:

  • Intensity of Rivalry: High

The rivalry among existing firms is high within the steel industry. Currently, there exists a glut of domestic and global steel manufacturers within the industry. Price wars with dramatic reductions in prices between global versus domestic steel companies have been the norm. Because steel is a generic commodity product, most steel firms have developed their own core competency specialty product to differentiate themselves from one another.

There are a large amount of firms and with new technology firms are continually cutting costs and reducing prices. Thus, moves of one competitor in terms of pricing, promotion, new product introductions and major changes in terms and conditions of sale can generate immediate competitor responses.

Stronger players in the industry are increasing market share and gaining economies of scale when possible by constantly buying up marginal producers. Firms that can keep cost down, developed new technology, and have significant financial resources will be the only survivors in the industry. There are still many competitors in the industry even after considerable industry consolidation, and the industry capacity often exceeds the actual utilization. For these reasons, the rivalry intensity is high in the steel industry.

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  • Threat of new entrants: Low

The threat of new entrants is low in the steel industry. This is primarily due to the high capital requirement for entry. Firms requires huge amount of funds to achieve economies of scale. Besides, in order to comply with the government regulations and to maintain competitive advantages, significant investments on environmental control systems and manufacturing technology upgrades must be made continuously. For this reason, capital requirement is a deterrent to new entrants in the steel industry. New entrants frequently bring additional capacity to an industry. Thus it is possible that prices will be bid ...

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