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promise its escape from saturating or shrinking market of making low end
structural products (re-bar/wire rod) into the low end flat-sheet market. The latter
required large economies of scale, and due to huge excess capacity (60%
utilization rate) would cast doubts in the Nucors strategic shift. Nonetheless, CSP
entitles Nucor to enter the new market with minimum efficient scale and at low
marginal cost of production. This article will assess financial risks associated with
CSP, if Nucor choose to become first adopter.
Secondly, Nucor has already confirmed its 51% joint venture with Yamato Kogyo to
produce wide-flange beams (minimill based market), which is projected to cost
$89.25 M. Combining both CSP and joint venture, Nucor would need $410 M over
three years, and with $185 M cash, it has to raise $225 M. Current, long term debt
is $42.15 M, so with the concurrent projects, the debt would raise to $267.15 M.
Now, Nucors market cap is $795.58 M (21.31 M shares & 37.65 avg. stock price),
so with new funding it would have reasonable debt ratio of 0.336.
With lack of full-scale proof and life span of 10 years, establishing a nascent CSP
technology could be a risky decision. Further, not owning the rights for CSP would
lead unobstructed market adoption. Financially, Nucor have never raised this much
of debt at single time in its heritage so far, however, after discount, the CSP would
only cost $90 M. The major cost is attached to build new plant which, even if CSP
failed to bring above mentioned cost advantage or CF, could be used to make
current products, and in the case it has suggested that Nucor would try to make its
payments to SMS contingent on performance clauses, further lowering financial
risks.