Continuous Casting Investments at USX Corporation Nitesh Kumar Singh (1811370)

1. What was the proposal put before Kappmeyer? Why was this proposal put up? What
were the alternatives considered?

The proposal was to install a continuous caster and to modernize hot rolling mill via two-
phased investment in company’s huge Monogehala Valley steel making complex which
required an investment of USD 600 million.

The proposal was put up in the order to lower the cost of production for flat-rolled by 15%,
thereby assuring USS a strong competitive position in North American market. This was in line
with the USS’s turnaround strategy in 1980s to become one of the world’s most efficient
producers of high-quality sheet and strip steel.

The other alternative was a radically different approach to slab casting called as compact strip
production (CSP). This technology held to the promise of reducing the cost of the sheet and
strip by 10% -15%, and that its capital cost per ton of capacity – about $300 which is only 30%
($1000) of capital cost per ton of capacity when employing conventional casting and rolling
technology. Exhibit A & B gives a snapshot of the comparison between two alternatives.

2. Should Kappmeyer have signed the proposal? Why?

In the order to arrive at the answer to the aforementioned question, I will evaluate the pros
and cons of both the technology.

Conventional Casting & Rolling

Developed in late 1950s, it has led to significant reduction in processing costs (15%) by
eliminating the batch-casting of steel into ingot molds and introducing continuous casting of
steel into thinner, longer, near-net shape forms before cooling. Implementation of this
technology was the major reason for turnaround of USS during 1980s. USS has already
developed an expertise in the implementation of the same and hence upgradation can be
carried out smoothly. Moreover, as it is done in phases there would not be any cashflow
issues. The quality in terms of surface finish is high which the customers preferred. Hence on
the basis of above facts and Exhibit B we can say that it is a “sustaining technology”.

On the con side, the cast produced via this method is first cooled and then again re-heated
for rolling, there may be scope of minimizing such energy losses/inefficiencies in future. Also,
it would probably be the last continuous casting investment which would be made at USS for
at least a decade. Once this continuous casting at Mon Valley is installed, steel manufacturing
economics would force USS to operate it for decades, before they could consider is replacing
with more advanced, yet to be developed technology. This would severely impact the
flexibility of firm to keep pace with change in process technology in the steel industry which
is not a good sign for the future of the firm.

Compact-Strip Production
Developed by a German casting firm in around 1985s, which was still at infancy got adopted
by USSs competitor Nucor Steel’s. This method promises a 70% reduction in capital cost
required per ton of capacity. The most important element of this method is coupling of
continuous casting and rolling operations, rather than decoupling them with buffer

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Continuous Casting Investments at USX Corporation Nitesh Kumar Singh (1811370)

inventories of slabs which was prevalent in industry. Elimination of intermediate cooling,

inspection and re-heating helped cut the electricity consumption by more than half.
Moreover, specific to Mon Valley where continuous casting and rolling operations were 10
miles apart, coupling the two would be a necessity to remain competitive in market. In rolling
operations, the thickness of the slab can be reduced by 50% which is way higher than current
technology used in continuous casting (20%). This 50 percent reduction capability per stand
meant that Nucor could produce a new range of hot rolled products up to a minimum of 0.1-
inch thickness with only four stands. Also, its throughput rate was four times faster than
continuous casters. While evaluating the operating costs it turned out to be cheaper by $ 15
and $ 5 in best- and worst-case scenario respectively. Hence on the basis of above facts and
Exhibit B we can say that CSP is a “disruptive technology”.

On the con side, proof of concept at larger scale (>800,000) is yet to be seen. The quality of
the output is not at par with continuous casting method which is a big drawback. Hence,
Nucor Steel who was an early adopter was targeting segments of customer who were not
concerned much with quality. On the other hand, USS product were known for their quality
and management would not want to take risk here. The cashflow requirement was also
upfront which poses challenges in execution.

The verdict
No, Kappmeyer should not have signed the proposal because he failed to assess the disruptive
technology i.e. CSP’s performance over time [Exhibit C]. The decision was made keeping in
mind the current customer base and industry structure but not a futuristic view. The impact
of continuous thin slab casting would eventually have effect on the overall structure of the
steel industry. Generally, managers ignore the fact most of the new technology does not
initially meet the needs of their mainstream customers. For implementing disruptive
technologies, one should not take opinion of mainstream customers.
Now that the commitment is made, USS will not be able to invest more in advanced process
technology for a decade. This will open whole range of opportunities for its competitor i.e.
Nucor Steel who embraced the disruptive technology and will enjoy first mover advantage.
By the time USS realize the same it would be too late. As mentioned in the case “Historically
new steel processing technologies had been pioneered by the firms who were adding new
capacity in response to growth opportunities”1.

My recommendations
Kappmeyer should go for building a green field integrated plant using the latest CSP
technology in the order to prepare itself for the change in industry brought about by new
process technologies. It should be in the form of an independent organization to realize the
technology’s full potential.

1
https://www.invoicex.com.au/invoicex/disruptive-technologies-catching-the-wave-harvard-business-review-
1995-still-inspiring

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Continuous Casting Investments at USX Corporation Nitesh Kumar Singh (1811370)

o Exhibit A: Continuous Casting Technology Vs. Compact-strip Production (CSP) for 1.5
million tons/year capacity
Factors Continuous (10” width) CSP (3” width)
Type of Technology Sustaining Disruptive
Proof of concept Yes, operational in other Proven at 800,000 tons but
plants not at 1.5 million tons
Complexity involved Low(traditional) High
Operating Cost Reduction 15% 15% + 5% Worst Case
15% + 15% Best Case
Customer Preference Preferred May not be preferred as
consumers are risk averse
Index of turnkey capital cost 100 87 (13% lower)
Location of upgrade ET+ Irvine Only ET (new rolling mill)
Cashflow In phases Upfront
Logistics within Mon Valley 10 miles extra No transportation within the
transportation required complex is needed
Finish surface quality High quality Not at par
Throughput rate X 4X

o Exhibit B: Test for Disruptive Technology or Sustaining Technology

Factors Continuous (10” width) CSP (3” width)
Internal disagreements Low High
within management
Customer preference High Very Low
Current Market size High Low
Performance Trajectory Incremental Improvement Low performance (Surface
quality issues) initially
Financial Attractiveness Attractive Unattractive

o Exhibit C: How to assess disruptive technologies

o
Source: https://www.invoicex.com.au/invoicex/disruptive-technologies-catching-the-wave-
harvard-business-review-1995-still-inspiring

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Continuous Casting Investments at USX Corporation Nitesh Kumar Singh (1811370)