Nucor 2015 Annual Report Download - page 23

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SCRAP RECYCLING AND BROKERAGE OPERATIONS
The David J. Joseph Company and its affiliates (DJJ) operate six regional scrap recycling companies within the United States that
together have the ability to process approximately five million tons of ferrous scrap. DJJ‘s scrap recycling operations use industry-leading
expertise and technologies to maximize metal recovery. DJJ operates nine self-serve used auto parts stores called U Pull & Pay that
complement the recycling operations.
DJJ is also the North American industry-leading broker of ferrous scrap; internationally sources scrap, pig iron and other scrap
substitutes; and brokers ferro-alloys and nonferrous metals. The DJJ Mill and Industrial Services business provides logistics and
metallurgical blending operations and offers on-site handling and trading of industrial scrap. The DJJ Rail Services business oversees
rail cars dedicated to scrap and steel movement and offers complete railcar fleet management and leases for third parties. All of these
businesses have strategic value to Nucor as the most diversified North American steel producer.
Since its acquisition by Nucor, DJJ has added over 1.3 million tons of scrap processing capacity through acquisitions and the opening
of new yards. Most recently, DJJ acquired two scrap processing operations in 2014: OneSteel Recycling, Inc. of Tampa, Florida, and
the assets and business of Sims Metal Management’s Utah recycling facilities.
DIRECT REDUCED IRON OPERATIONS
Nucor operates two plants that produce DRI with world-class metallization rates and carbon content levels. DRI is a valuable scrap substitute
material that is utilized by Nucor’s steel mills to produce high-quality steel products. Nucor’s first DRI plant, Nu-Iron Unlimited, is located
in Trinidad. The Trinidad site benefits from a low-cost supply of natural gas and favorable logistics for receipt of iron ore and shipment of
DRI to the United States. In late 2013, Nucor commenced production at our DRI plant in Louisiana. The start-up of this operation gained
momentum in 2014, with the plant producing and shipping significant volumes of high-quality DRI to the Nucor steel mills. However, on
November 2, 2014, the plant experienced an equipment failure to the process gas heater, which is an ancillary piece of equipment to the
DRI producing vessel. The plant successfully restarted operations at the end of the first quarter of 2015, producing DRI consistent with
the world-class quality levels prior to the equipment failure. Due to the steel market and metallic price dynamics, the plant scheduled
an extended maintenance shutdown that began in late October 2015 and lasted until late January 2016. Nucor’s combined annual DRI
production capacity of 4,500,000 metric tons provides significant flexibility to Nucor to quickly react to metallic market dynamics and to
maintain competitive pricing and supply pressure on the sometimes volatile scrap market. Due to the recent investments in DRI production,
Nucor is better positioned to manage our overall metallic input costs and our supply-related risks.
NATURAL GAS WORKING INTEREST INVESTMENTS
The DRI production process requires significant volumes of natural gas. To ensure that the DRI plant in Louisiana has a sustainable advantage
from lower natural gas costs, Nucor entered into two long-term, onshore natural gas drilling programs in the U.S. with Encana Oil & Gas (USA)
Inc. (Encana). The natural gas produced by these two programs is sold to third parties to offset our exposure to spot prices of natural gas
consumed by the Louisiana DRI facility and our other operations. Starting in January 2014, Nucor and Encana temporarily suspended drilling
of new natural gas wells as a result of current low natural gas prices, demonstrating the flexibility of our partnership with Encana to react to
short-term market conditions while preserving our ability to manage Nucor’s long-term exposure to higher natural gas prices at our operating
divisions that consume natural gas. Nucor retains its contractual rights to resume drilling in a higher natural gas pricing environment.
The Trinidad and Louisiana DRI plants, along with Nucor’s ability to ensure a long-term, low cost of natural gas, are important components
in the execution of Nucor’s raw material strategy of providing between six and seven million tons per year of low-cost, high-quality iron
units to our steel mills.
RAW MATERIALS SEGMENT
SCRAP AND SCRAP SUBSTITUTES are Nucor’s single largest cost.
Nucor has implemented a long-term raw materials investment strategy focused
on reducing the cost structure of our steelmaking operations, providing greater
metallics input flexibility, creating a shorter supply chain and achieving greater
control over our key steel mill metallic inputs.
Images (clockwise from top left) A teammate stands before a pile of heavy melt scrap at Nucor Steel Kankakee. A barge staged on the Mississippi River unloads iron ore at Nucor Steel Louisiana.
Nucor recycles tons of scrap metal into high-quality steel and steel products. Direct reduced iron (DRI) pellets. Shredded scrap is delivered to the Nucor Steel Auburn melt shop.