We’ve been looking at some facts on the US steel market as context for Big River Steel’s decision to open another steel plant in Arkansas’ Osceola County.
Here’s the continuation of how we see things playing out:
3. Location matters when it comes to sourcing steel. Most companies look for suppliers that have operations within a 300-mile radius (maximum) from the buyer’s operations. In this case, Nucor has three mills nearby. According to Nucor’s most recent quarterly report on Nov. 7, 2012, the steel mill products group (which includes operations in Arkansas) operated at a 75% capacity utilization rate and has done so since 2011 (it was lower before 2011).
Takeaway: If the customer tends to source “nearby,” what could we expect Nucor operations to do once Big River Steel LLC comes on line? Can we bank on 75% capacity utilization? (Hint: We’d expect that number to drop.)
4. If the goal for the State of Arkansas involves job creation and economic development and the state authorizes this “super project,” as it has been characterized, what can we expect in terms of job growth in the short and longer term?
Takeaway: In the short term, we can expect some new construction jobs (which will disappear after the plants go up) and longer term, Big River Steel could possibly eat into Nucor’s market share. This could, in theory, result in Nucor production cutbacks (and lower wages for Nucor employees – Nucor has rarely, if ever, laid people off), while also causing Big River Steel to work at less than its full capacity utilization rate. Ultimately, this raises the question of whether that mill could ever hire the number of people it has promised the state…
The Arkansas Teacher Retirement System announced it wants to make a $60 million investment in this project.
I’ll take that as my proof positive that we can call this moronic economic development activity.
Perhaps the politicos in Arkansas ought to spend a little less time trying to add up the job/salary/local economic benefit calculation, and instead figure out whether or not this development initiative will actually grow the pie or eat into the one already feeding it.
Disclaimer: Nucor Corporation is a paid sponsor of MetalMiner.
*Nucor is conflict minerals-free, but what about your other suppliers? Find out what your company must know about conflict minerals compliance – download our FREE A-Z guide for manufacturers: