Nucor 2011 Annual Report Download - page 11

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items. Our products are further used in the pipe and tube, pressure vessel, transportation and construction industries. The current
annual production capacity of our two plate mills is approximately 2,900,000 tons.
In early 2011, Nucor started operations at a newly constructed 125,000-ton heat treating facility at the plate mill in North Carolina.
Heat treated plate is used in applications requiring higher strength, abrasion resistance and toughness. This project has advanced
Nucor’s strategy of expanding our value-added product mix in the plate market.
OPERATIONS
Nucor’s steel mills are among the most modern and efficient mills in the United States. Recycled steel scrap and other metallics
are melted in electric arc furnaces and poured into continuous casting systems. Highly sophisticated rolling mills convert the
billets, blooms and slabs into rebar, angles, rounds, channels, flats, sheet, beams, plate and other products.
Steel production increased 7% from 18,258,000 tons in 2010 to 19,561,000 tons in 2011. Annual production capacity has grown
from 120,000 tons in 1970 to 13,000,000 tons in 2000 to a present total of approximately 27,000,000 tons.
Scrap and scrap substitutes are the most significant elements in the total cost of steel production. The average cost of scrap and
scrap substitutes used increased 25% from $351 per ton in 2010 to $439 per ton in 2011. A raw material surcharge implemented
in 2004 assists Nucor in maintaining operating margins and in meeting our customer commitments during periods of highly
volatile scrap and scrap substitute costs.
Steel mills are large consumers of electricity and natural gas. Total energy costs increased approximately $1 per ton from 2010 to
2011 primarily due to higher electricity unit costs. Because of the efficiency of Nucor steel mills, the 2011 energy costs were less
than 6% of the net sales dollar.
The operations in the steel mills are highly automated, resulting in employment costs of less than 7% of the net sales dollar in
2011. Employee turnover in Nucor mills is extremely low. All employees have a significant part of their compensation based on
their productivity. Production employees work under group incentives that provide increased earnings for increased production.
This additional compensation is paid weekly.
MARKETS AND MARKETING
Approximately 86% of the steel mills’ production in 2011 was sold to outside customers, and the balance was primarily used
internally by the steel products segment. Steel shipments to outside customers increased 6% from 15,821,000 tons in 2010 to
16,796,000 tons in 2011.
Our steel mill customers are primarily manufacturers, steel service centers and fabricators. The sheet mills continue to build long-
term relationships with contract customers who purchase more value-added products. We enter 2012 with approximately 50% of
our estimated sheet mill volume committed to contract customers. Contract terms are typically less than twelve months in length
with various renewal dates. These contracts are generally noncancelable agreements with a pricing formula that varies based on
raw material costs and/or market-based indices.
SHEET STEEL PROCESSING JOINT VENTURE
In March 2010, Nucor entered into an agreement with Mitsui & Co. (U.S.A.) to form NuMit LLC. In April 2010, Nucor acquired a
50% economic and voting interest in NuMit LLC for approximately $221.3 million. NuMit LLC owns 100% of the equity interest
in Steel Technologies LLC, an operator of 25 sheet processing facilities throughout the United States, Canada and Mexico.
Steel Technologies operates as an independent business, allowing Nucor to continue its long-standing relationships with other
sheet processing companies while at the same time allowing Steel Technologies the ability to independently manage its supply
needs. Nucor’s previously announced plans to construct a greenfield flat-rolled processing center in Monterrey, Mexico, will be
implemented by Steel Technologies. This joint venture relationship is also supportive of Nucor’s growth strategy of finding the right
partners to grow with internationally.
INTERNATIONAL JOINT VENTURE
In 2008, Nucor acquired 50% of the stock of Duferdofin Nucor S.r.l., which operates a melt shop and bloom/billet caster in Brescia,
Italy, with an annual capacity of 1,000,000 metric tons. The joint venture also operates three rolling mills in Italy including two beam
rolling mills that have a combined capacity of approximately 1,000,000 metric tons and a 450,000-metric ton bar mill started up in
2009. Duferdofin Nucor also operates a 55,000-metric ton trackshoes/cutting edges mill.