Minimills

Although small, non-integrated steel plants had existed in the United States since the nineteenth century, plants constructed in.the early to mid-1960s that used electric arc furnaces to melt scrap into steel were the first to be referred to as " minimills." In addition to adopting improvements in furnace and casting technologies, minimills took advantage of the declines in integrated steelmakers' demand for scrap as the latter switched to basic oxygen furnaces and, later, as their steel production fell. By eliminating coke ovens and blast furnaces, minimill technology reduced the minimal efficient scale of production by a factor of 10 (from millions of tons to hundreds of thousands of tons, or less), and the capital cost per ton of capacity by yet another factor of 10 (from $1, 000+ to $100+). Minimills were typically built to last only 10 years, compared to 25-30 years for integrated mills.

⁶ Specialty steelmakers also operated a small amount of flat-rolling capacity, equivalent to 2% of the total volume for integrated mills.

The impurities in most scrap initially confined minimills to low-end structural products such as bars for reinforcing concrete, wire rod and small structural shapes. As a result, many got their start in the Sunbelt where construction had begun to boom. They began by pursuing regional strategies, locating within 200-300 miles of their markets, usually at sites with inexpensive electricity. Their modern technology, advantageous locations, cheaper and more cooperative labor, entrepreneurial management, and narrow product lines (which reduced the time required to reconfigure rolling stands), let them wrest share away from integrated steelmakers in the segments they served. Over time, they also reduced import penetration in those segments from above average to below average.

By the second half of the 1970s, the market for low-end structural products was beginning to reach saturation. Minimills responded by looking for new market outlets. The more aggressive ones expanded beyond their traditional 200-300 mile radii, typically by acquiring existing mills or by adding large new ones with up to several hundred thousand tons of steelmaking capacity. They also began to move into new product segments, such as higher-quality bars, larger structural shapes and pipes and tubes. Their geographic expansion had a more immediate impact than their efforts to expand their product ranges: minimills' profits shrank as the geographic insulation between them broke down and as year-to-year volume growth tapered off into single digits in the 1980s. Twenty-five minimills were closed or sold between 1975 and 1986.

In 1986, minimills continued to be shut out of flat-rolled and certain specialty products and to be confined to modest shares of the segments they had recently targeted, but they had nearly expelled integrated mills from low-end bars, wire rods and small structural shapes. They accounted for 16% of domestic steelmaking capacity, up from 7% in 1975, and a slightly higher percentage of domestic shipments. While 36 companies operated a total of 51 mini steel plants, 43% of all minimill steelmaking capacity was controlled by the five largest competitors: North Star (2.4 million tons), Nucor (2.1 million tons), Northwestern Steel and Wire (1.8 million tons), Florida Steel (1.6 million tons), and Chaparral (1.1 million tons).

North Star was owned by Cargill, a privately-held company primarily engaged in agribusiness. It operated five steel mills, four of which were in the Midwest and was upgrading the only mill it had built itself, which produced special-quality bar steel but had failed to perform as expected. It was also adding a seamless-pipe plant at an existing location at a cost of about $100 million. Northwestern Steel and Wire operated a plant in the Chicago area that produced mostly structural shapes, wire products and merchant bar. In 1986, it was reorganized after four years of losses ranging from $14 - $40 million per year. Florida Steel operated five plants in the Southeast, all but one of which it had built itself. It focused on traditional minimill products in which it held a very high regional market share. Chaparral was co-founded by Co-Steel, a Canadian steelmaker, and Texas Industries, a cement and construction company; the latter bought out the former in 1985. It operated a single plant in Texas, where it made a broad array of products, including wide-flange beams, of which it was the first minimill producer. Chaparral sold its products around the country and had a reputation for progressiveness that was exceeded, perhaps, only by Nucor's.