Building for a Better Future

  Q. Does Nucor prefer any particular grade of scrap at your mills?

If there is a key to melting scrap at electric furnaces then it is to have a blend. Number one, you want to put the lowest cost mix together possible to give the quality required for the end user. There is no one particular grade that people want. If you try to use 100 percent shredded you would have poor productivity. People have tried it. We have tried 100 percent pig iron and it didn’t work very well. You want a blend of five or six different grades of scrap in order for it to be the most efficient. You are looking at issues like meeting the quality requirements. Secondly, minimizing your energy requirements, minimizing the amount of emissions that would come off, maximizing your productivity, the tons per hour out of the furnace. Believe it or not there are some blends of different types of scrap that work better than others. Probably shredded is one of the more used items because it allows you to build a dense charge. But you can’t use 100percent shredded because it will cause you problems.

Q. Are you looking to increase your intake of HBI and DRI?

It all depends. Right now it depends on the product mix coming out of our mills. It also depends on whether we add more capacity to our flat rolled. Because that is where those iron units come in. We use them to get the chemistry where they need to be to produce the quality necessary in sheet products.

Q. Do you see ferrous scrap processors being able to continue providing the scrap needed as a raw material?

Absolutely, there is no shortage of scrap. There is no shortage of quality scrap. Not only here, but worldwide. What is happening is other areas of the world are becoming exporters. There is no shortage of prime grades. You can’t exclude the fact that people are using HBI and pig iron to supplement. And that will continue. There is plenty out there. I don’t see the usage increasing dramatically.

Q. Energy costs. What can Nucor do to offset significant increases in energy costs?

Firstly, it isn’t just the minimills that are being impacted. Look at the integrated. Integrated mills also have been hurt. They are big consumers of natural gas and they have been hit hard.

There are a number of main drivers for the problem, including market manipulations by utilities and powerbrokers and screw-ups by the politicians. Further, California is sucking power from neighboring states, dragging the whole West Coast into the problem. If you take a look at really what the main drivers it has been natural gas.

Our company is very energy efficient compared to other types of integrated processes, although we still consume a lot of power. Our flat rolled operations consume a lot less gas than an integrated plant because we use a thin slab caster to put into a tunnel furnace. We don’t use the same volumes of gas. Our operations are inherently more efficient. But we still have seen an $8-$10 a ton average hit because of natural gas and natural gas affecting electricity prices.

That will be cut in half probably with the pricing we see now for natural gas. As far as conservation goes we are constantly working to minimize our energy consumption in our furnaces, in our electric furnaces, in our reheat furnaces.

One of the biggest things people can do in our industry is hot charging. Where you take the material right off the casting machine while it is still red hot and put it right into the reheat furnace and then roll it. We do it at our sheet mills because they come right off the caster into a tunnel furnace into the mill. And a lot of our bar mills and beam mills do as much hot charging as the scheduling allows. The more that you can do you can save two or three dollars a ton in energy consumption.

But other than that we are pretty much stuck with the fact that we consume electricity in our arc furnaces. The good news for Nucor plants is we have long-term contracts in place for electricity so our impact there is minimal.

Q. Is your company still using David Joseph as your exclusive buying agent?

David Joseph is basically our exclusive buying agent. We do buy pig iron on the open market. We have a reverse auction that we run. And many times David Joseph will be the supplier of pig iron, but also other people will. Occasionally, the general managers will do some buying on their own to keep their fingers on the market. We don’t discourage that. But, when you are consuming over 11-12 million tons of scrap a year, you would have to have a tremendous increase in the number of people involved. And, we would have to bring the people in the buying side and the logistics side. We have a 30-year relationship with David Joseph. And they have done a great job for us.

Where they really benefit us is on two fronts. One way they benefit us is by buying the volume that we need for all of our operations around the country. You couldn’t do it more efficiently than they do. You could always have one plant buying a little bit lower. Their commission is very low on a per ton basis.

The other thing they do is managing logistics. The logistics of moving scrap from overseas or anywhere to the United States to our operations is huge. They have their own rail cars, and they have a very good system to manage logistics. Those two things are obviously the two most important things. Getting it at the best price and getting it delivered in a timely fashion. They do an excellent job for us. It couldn’t be done better.

Q. Do you see Nucor going more directly into the scrap business?

Absolutely not.

Q. Current melt rates, capacities?

Our capacity has increased with our new plate mills coming on line. We are in the neighborhood of 14million tons of capacity. We are on track to produce 13 million. The only reason we are not producing 14 million is because the plate mill is in ramp up mode.

Q. Any future plans?

Nucor’s growth strategy going forward is three fold. One, focusing on our existing business and maximizing the profit margins by maximizing the revenues per ton by getting it to highest value product that we are capable of and then stretching to go even further. Maximizing the efficiencies of the plants -- to be the lowest cost producer. That is a big issue for us. Even in the record year we had last year we were quite frankly running on 5 of 8 cylinders. Our flat rolled business was a bad business the second half of last year.

Nucor’s potential from an existing operations is tremendous. And we have multiple action plans in place that are being implemented even as we speak, to successfully drive costs out, improve productivity and improve quality to get to the higher value added, in many of our markets, including flat rolled.

Our second strategy is to grow through acquisitions, which is new. We have already acquired our first steel company, from Sumitomo. It is up in Auburn, N.Y. It is about 430,000 tons a year of bar product. The mill produces a similar mix to what we do with our four bar mills. It gives us an excellent geographic position in the Northeast. It is only 70 miles from our newest joist plant in New York.

We will continue to look for acquisitions, both in our steel making areas of expertise, but also we will be opportunistic in sheet or plate or special bar quality products. We also are looking downstream with finished products opportunities for acquisitions.

The third growth strategy involves the implementation of new technologies, particularly disruptive and leapfrog technologies. The one we are working with now is called cast strip. We are constructing a direct sheet casting from liquid directly to sheet. That process is known as cast strip. That will allow us to get back into Greenfield opportunities in flat rolled where we have major cost advantages, and even some quality and technologies advantages over existing production techniques for producing cold rolled quality or cold rolled equivalent material.

By that I mean we will be casting gauges that are only being produced by cold rolling. It offers an excellent opportunity. The cost structure will be equal or less than the cost to produce hot band. We will have a cold rolled quality off the caster. And, we are scheduled to be in start up the first quarter or second quarter of 2002,which is about a year away. (Nucor is partners with BHP on the process. IHI is the equipment company. Nucor and BHP own 47.5 percent of the partnership.) We will know a lot in a year. The technology works. The process was pioneered in Australia, but the company couldn’t commercialize it because they were only running 5-10 ton heats. The exact equipment over there is now being installed in Crawfordsville, Ind., where we have excess melting capacity. With the commercialization we will be really able to see how the equipment holds up, how the refractories hold up, how the key technologies hold up.

We know it works. We have taken coils made in Australia and sent them to customers here and they performed flawlessly. It is a matter of taking it to the commercialization stage. We are actually further ahead on cast strip than when we got into thin slab casting at our first operation in Crawfordsville when we took the technology developed and commercialized it. So, we are very positive about the technology and very confident. But it is still an unknown. But this is the type of growth that allows you to provide a continuous revolution in steel making worldwide.

Nucor will not only be building this facility for itself and others after that, but we will be having the royalty rights to it. We have exclusive rights to the technology in the United States and Brazil. And we have royalty rights worldwide in conjunction with BHP. So, we would benefit from the revenue stream, as well as from the use of the technology.

As for other leapfrog technologies, we are working with Rio Tinto (Rio Tinto is a world leader in finding, mining and processing the earth's mineral resources. The company’s management structure is based on six principal product groups: Iron Ore; Industrial Minerals; Copper; Aluminum; Energy; and Gold & Other Minerals) on a liquid iron making technology using iron ore fines. It is very flexible on the quality of coal. You can use virtually any type of coal. The operation is a very low energy consumer and generates low emissions. And it is very flexible. You can turn it on and off almost like an electric arc furnace, as opposed to a blast furnace where it costs tens of millions of dollars to do that.

This is very encouraging, although it is farther out, about two years before we know if that will be commercialized or not. The pilot plants are running on it. 20,000-ton plants. We are building a 600,000 tons a year plant in Australia with Rio Tinto. But then again it will be two years before we know about it.

Q. Any thoughts about buying the Trico Plant (the Trico facility, in Alabama, is an idled minimill partly owned by LTV Steel)?

It is not appropriate to talk about specific acquisition opportunities. Certainty facilities like Trico attract attention. Even though they have some equipment problems, it is relatively new equipment. It is an opportunity for someone to go in there. But our impression is that it wouldn’t be cheap to correct the problems.