Chapter 3 - Environmental Threats

Nucor (NUE) is a steel processor and manufacturer of a large array of steel products.  Nucor can be considered a mini-mill because of its size, but it makes up for it with technology.


Regarding the industry structure in which NUE operates, it would be classified as an Oligopoly - few competitors, has some of the same but also some different products and is able to generate a profit because it does not deal in perfect competition.


In applying the five forces model of environmental threats, I see the following for NUE:
Threat of Entry: There is a high capital cost for entry into the steel processing business, both in machinery and in experience.  This makes the threat of new entry low.
Threat of Rivalry:  The threat of rivalry is high, especially when overseas steel manufacturers are included in the assessment.  NUE uses technology to gain a competitive advantages where possible, plus it generates steel deliverables within so many commercial areas (flat rolled steel, steel bars, beams, plates, trusses, grating, mesh, re-bar, wire, bolts, etc.) that it has many price points it can use to offset pricing wars in any given area.
Threat of Substitutes: This threat is low, as steel is a necessary component in many products.  The use of plastics, aluminum, etc. might transplant steel in a few areas, but not in all.
Threat of powerful Suppliers: NUE uses scrap metal (it is the largest recycler of metal in the western hemisphere) as a primary raw component in its steel production.  NUE has facilities to collect scrap, but it also purchases scrap from suppliers.  Increases in price by scrap metal suppliers would adversely impact NUE.
Threat of powerful Buyers: This threat is low, as no one company purchases a significant amount of NUE's products.