Difference between an integrated and a mini mill:

Integrated mill Mini mill Produce from raw ore Use blast furnaces Large optimal capacity High quality Produce from scrap Use electric arc furnaces Small optimal capacity Low quality

Difference between continuous casting and CSP:

Continuous casting Huge capacity Higher costs Produce steel Up gradation easier Compact strip production(CSP) Limited capacity Lower costs Use scrap steel Needs fundamental changes 7/29/12

A FRAMEWORK FOR ANALYZING COMMITTMENTS

7/29/12

Benefits of continuous casting: 1. Considerable energy savings 2. Less scrap produced, i.e. Improved yield 3. Improved labor productivity 4. Improved quality of steel 5. Reduced pollution 6. Reduced capital costs 7. Increased use of purchased scrap when Output is maximized. Strategic commitment as both demand the lowest price Will be a soft Will refrain posture as thefrom market leader commitment is Nucor action Accept status quo out of fear; will wait to follow the Firms: USX and 7/29/12 leader Nucor:

Issues at USX Corp

Mini mills, competing heavily with

integrated mills

Challenge of increasing market growth

through innovation
Exploiting growth avenues that would result in

high gains without high risk

Challenge in assessing a new technology

based on information from a competitor consumers and other shareholders

Meeting the growth expectations of

7/29/12 Even with $600 million investment;

Continuous casting system at USX a market leader, primarily as a low cost producer of high USX was

quality sheet and strip steel.

Continuous casting system - is an efficient process and it reduced

cost of manufacturing basic steel mill products by 15% steel market cost

Threat from the increasing market share by Minimills ; 30% of US Continuous pressure to increase revenue , decrease manufacturing Cost of implementation of a new plant very high ; still a barrier to

entry for low budget Minimills

Innovation in mature market is challenging Difficult for USX to find growth market At current growth rates there already was sufficient capacity in the

industry to satisfy market demand for another 10-15 years. 7/29/12

Whether to invest into installation of new continuous caster ? go for Why it should
Need to further reduce costs and increase

investment

efficiency in order to remain competitive in the market

The new Increase efficiency over the previous

investment Cost of implementation of a new plant very high Innovation in mature market is challenging ; Rapid pace of technology change in the steel risk adverse shareholders may not approve of industry uncertain attempts High risk growth opportunities do exist; can result Minimills were continuously increasing their 7/29/12 in big losses

process and also it will lower the overall Why it should not go for manufacturing costs

share in the Steel Industry , high capital

Recommendations
Kappmeyer should not sign the proposal:

Reasons being:-

1. It does not have long-term sustainability 2. The market has already indicated that it is

changing, adapting to mini mills, and this trend would likely continue

3. No silver bullet for USX with this technology 4. This may ignore future potential customers

(low quality steel)

7/29/12