Can Nucor Forge Ahead And Keep Its Edge?

Last summer, while the entire steel industry was wondering whether Nucor Corp. would make its next move east or west, F. Kenneth Iverson fooled everyone. He went south--to Trinidad, where he celebrated to the rhythm of steel drums. The occasion was what locally is called a "ground-blessing" for Nucor's latest venture, a $70 million iron-carbide plant.

By investing in this new technology to make iron for its furnaces, the $2.3 billion minimill company is bucking a trend. Even as the major U.S. steel companies narrow their focus, Nucor, which earned $123 million last year, is branching out. It's taking control of its raw materials and pushing a broader range of products, from stainless steel to gargantuan I-beams. "We're turning into an integrated company," says Iverson.

LINKED. The question is whether Nucor--the most profitable U.S. steelmaker by every measure--can stay lean as it grows big. Its headquarters in a Charlotte (N.C.) office park employs just 24, from clerical staff to the 68-year-old Iverson and his heir apparent, President John D. Correnti. Even if Iverson and Correnti keep Charlotte trim, they'll be wrestling with a more complicated cost structure. To date, Nucor has stayed remarkably free of fixed costs, with everything from pay to pensions linked to company performance. That has let Nucor make money every quarter since 1965. Moving upstream into ore processing means "those costs become fixed," says analyst Charles A. Bradford at UBS Securities Inc. "That could hurt them in a downturn."

Iverson seems far more excited about the upside. As a minimill, Nucor uses scrap as raw material. Scrap prices have soared 70% in 15 months. So Iverson plans to ship iron ore from Brazil to Trinidad, where it'll be fed into giant reactors fueled by local natural gas. The reactors will produce iron carbide, which can be poured into ships like grain and used as a partial substitute for scrap. The process, developed by Frank M. Stephens, has never been used on a large scale. But if it works, Nucor will have a cleaner raw material and make higher-grade steel.

Iverson's dreams don't stop there. He says Nucor could sell iron carbide to the rest of the industry. Scribbling on a pad, he also shows how the process yields vast amounts of water as oxygen from the iron feedstock combines with hydrogen from natural gas. He envisions shipping Indian iron ore to Saudi Arabia, then selling water and steel in the desert kingdom.

Steel executives know better than to scoff. "The woods are full of people who bet against Iverson and lost," says James A. Todd Jr., chairman of Birmingham Steel Corp. Iverson's biggest gamble was his $360 million investment in 1989 on experimental German technology. This launched Nucor into flat-rolled steel, where it became the world's low-cost producer. Nucor is nearly doubling capacity at its flat-rolled mills in Indiana and Arkansas, and it plans more mills. Within five years, Nucor, now the No.4 U.S. producer at 5.7 million tons a year, could be butting heads with the 9.8 million-ton U.S. Steel Div. of USX Corp., which is No. 1. "We keep doing what we do well, and it mounts up to tonnage," Iverson says.

The mne thing that may hurt Nucor is imitation. Clones are popping up everywhere and bidding top dollar for Nucor managers, the only experts around in thin-slab casting. Last fall, three from Nucor Steel-Indiana quit to start their own mill. Nucor's flat structure--there are only three levels between president and mill worker--makes it tough to fill such holes, and tensions at Crawfordsville soon rose so high that the new plant manager met with each worker to fight a possible incursion by the United Steelworkers, the bugaboo of Nucor's nonunion culture. "Management made some rookie mistakes," such as dictating changes without consulting workers, says Tracy L. Shellabarger, controller at the plant.

Despite such turmoil and scrap's high price, the Indiana plant doubled its operating profits last year, to $80 million, according to PaineWebber Inc. Such numbers give Iverson plenty of walking-around money for new ventures--from Trinidad to Saudi Arabia.

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