Steel Dynamics, Inc.

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Steel Dynamics, Inc.

6714 Pointe Inverness Way
Fort Wayne, Indiana 46804
Telephone: (260) 459-3553
Fax: (260) 969-3590
Web site:

Public Company
Employees: 676
Sales: $606.98 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: STLD
NAIC: 331111 Iron and Steel Mills; 331221 Cold-Rolled Steel Shape Manufacturing

Steel Dynamics, Inc. is a rising, vibrant force in the U.S. steel industry. Using scrap steel melted in electric arc furnaces, the company casts steel products used in buildings, automobiles, and other manufactured items. Hot-rolled, cold-rolled, and coated steel sheet products are produced by the companys flat roll division in Butler, Indiana, which uses a revolutionary thin-slab casting technology. The companys structural and rail division, located in Columbia City, Indiana, produces structural shapes and beams, as well as standard and premium rail used by North American railways. Its thin-slab technology is patterned after a process developed by a German equipment manufacturer, first utilized by U.S. steelmaker Nucor Corporation, where Steel Dynamics three founders were employed prior to venturing out on their own.

Origins: The Early 1990s

In 1993, wrote Keith Busse for the corporate web site, my colleagues and I set out to do something that had not been done in the United States for many years. What he and his cofounders, Mark Millet and Richard Teets, Jr., were attempting to accomplish had not been achieved in a century. The three innovators, with Busse taking the lead, were attempting to start a new U.S. steel company without corporate backing, endeavoring to independently finance a start-up venture without preexisting financial credentials. Lacking the traditional means of support, the three founders parlayed their reputations and vision into a substantial amount of cash. By September 1993 Busse had raised $370 million. Busse succeeded in raising the capital because steel-savvy investors were well aware of what he, Millet, and Teets had achieved in Crawfordsville, Indiana, with a division of Nucor. Busse promised investors he would improve upon the revolutionary success achieved in Crawfordsville and better it with Steel Dynamics in Butler, Indiana.

Investors were more than willing to hand over millions of dollars to Busse because of his accomplishments at the Charlotte, North Carolina-based Nucor Corporation. Busse spent 21 years working for the celebrated steelmaker rising from division controller to general manager, eventually becoming vice-president and general manager of the Nucor Steel Division in Crawfordsville. Busses leadership of the Crawfordsville operations occurred at an exciting time for Nucor and the steel industrys onlookers. A German equipment manufacturer, SMS, had developed a revolutionary steelmaking technique that turned melted steel into a continuous ribbon measuring roughly two inches thick. These ribbons, or thin slabs, could be rolled into sheet steel faster and with substantially less machinery than the conventional 10-inch-thick slabs used by integrated steelmakers. In 1987 Nucor forged an agreement with SMS to build the worlds first thin-slab minimill, a project to be headed by Busse and located in Crawfordsville.

As Busse took charge of the project, he gathered the team that would make steelmaking history. One of the first managers hired by Busse was Richard Teets, who joined Nucor in 1987 as engineering manager at Crawfordsville. Teets managed the design and construction of the new thin-cast slab facility, paying particular attention to ensuring that environmental and other standards were met during the design and construction processes. Mark Millet, who earned a degree in metallurgy from the University of Surrey, England, joined Nucor in 1981 when he began serving as the chief metallurgist for the companys division in Darlington, South Carolina. When Nucor entered its agreement with SMS, Millet was tapped to oversee the design, construction, staffing, and operation of the melting and casting facility.

The continuous thin-slab casting process proved to be a commercial success. The accolades drawn by the Crawfords-ville operation spawned a host of emulators during the 1990s as many new minimill operations started up, hoping to ape the success achieved by Nucor. (Minimills, which operated at a lower cost than integrated steelmakers, used scrap metal to produce steel, whereas integrated steelmakers produced virgin metal from iron ore). Among the entrants was Steel Dynamics, led by Busse and his Nucor colleagues, which convincingly promised to improve upon the success at Crawfordsville. In a September 3, 2001 interview with Fortune magazine, Millet commented, We had an acute and intimate knowledge of what worked and what the shortcomings were.

After securing the capital to finance the construction of a thin-slab minimill, a formidable task in itself, the next great challenge facing Busse was site selection for the Steel Dynamics plant. Profitability, the foremost aim of the companyWe are in the business to make money; we are not in the business to make steel, Millet remarked in the September 2001 Fortune articledepended greatly on keeping raw material, electricity, and labor costs low. Busse elected to establish the Steel Dynamics plant in the northwestern Indiana community of Butler, close to both automotive and other steel scrap supplies, which accounted for roughly half of the companys total production costs. One of the earliest investors, OmniSource, was a scrap merchant with whom Busse signed a long-term purchase agreement at favorable terms. Once the Butler plant was equipped with furnaces, securing inexpensive electricity became intrinsic to achieving profitabilityone of the companys 190-ton electric arc furnaces consumed 100 megawatts of electricity in a single firing, enough to light up a small city. Again Busse secured a beneficial deal, signing an agreement with American Electric Power for 2.8 cents per kilowatt-hour, considered to be at the low end of the price scale paid by minimills. Steel Dynamics achieved perhaps its greatest success in its relationship with labor, but before agreements with production personnel took precedence, the company needed to build its plant.

The Butler Plant: 1994-96

With an initial capital cost of $275 million, the Butler plant began construction in the fall of 1994. On November 10, 1995, construction was completed and commercial operation began in January 1996. Both the cost and the 14-month construction period were record lows, providing evidence that Busses dual roles as chief executive officer and president were being executed with skill. Financial losses were expected as the fledgling Steel Dynamics started out, but the speed at which the company became profitable greatly impressed analysts. During its first six months of operation, the company reported $14 million in operating losses, but the streak stopped there; by July 1996 Steel Dynamics broke even for the first time. In August, the company posted $1.75 million in net income, followed by the $2.45 million in September, beginning a pattern of escalating profitability that earned the esteem of many within the steel industry.

Company officials credited much of Steel Dynamics initial and later success to its workforce. The companys employees were a motivated group, spurred to keep costs down and efficiency high by a number of incentive programs. Production workers were able to double their hourly rate if weekly production goals were met, which was not an uncommon management tactic employed by minimills, but Steel Dynamics went further to guarantee its employees performed at the highest standard. The company offered what it referred to as a conversion bonus, which was a pay incentive for keeping costs down. Everyone looks at cost and tries to find ways to keep it down, Barry Schneider, manager of engineering and services at Steel Dynamics, explained in the September 2001 profile in Fortune. For instance, Schneider continued, the guy who sticks the probe into the furnace to take its temperature knows each probe costs about $10. Hes going to want to do that only once, not four times. If somebody sees oil dripping from something, theyre not going to let it drip forever, because thats coming out of their pay. Aside from production bonuses and cost-containment bonuses, all employees also were given stock options twice a year and annual profit-sharing awards. Steel Dynamics has a unique workforce that really busts its rump, remarked an analyst at Morgan Stanley Dean Witter in the same issue of Fortune.

By the end of 1996, once Steel Dynamics had begun to demonstrate consistent profitability, Busse was ready to sell the company on Wall Street. By December the companys losses had grown to $50.7 million since its September 1993 inception, and Busse wanted to clear the company from some of its debt. Busse hoped to raise $140 million from an initial public offering (IPO) of stock, earmarking $75 million for capital expansion and the remainder for refinancing the companys debt. Upon completion of the IPO, Steel Dynamics investors would still retain approximately 80 percent of the companys stock.

After the preparations for the companys IPO, Steel Dynamics began to hit its stride and recorded impressive financial and production increases. In 1997, shipments increased more than 50 percent, eclipsing 1.2 million tons. Sales for the year jumped as well, swelling by 66 percent to reach $420 million. Most impressive, the companys net income reached $43.9 million, obliterating the $9.8 million loss posted in 1996. In 1998, amid plant expansions in Butler, the company recorded another banner financial year. Shipments increased 18 percent to more than 1.4 million tons and sales grew by 23 percent, reaching $515 million.

Company Perspectives:

We helped pioneer the continuous thin-slab casting technique of steel production that has been embraced by mini-mills the world over. Our innovative technical team continues to develop and refine our processes and equipment. We continually monitor operating results and make needed improvements. Our design/build management team is well respected in the American steel industry, having completed multiple mill projects on time and on budget. Our philosophy in designing production facilities is to hire the people early who are going to operate the plant and get them deeply involved in the design of plant layout and equipment.

Expansion in the 21st Century

Robust growth continued to characterize its progress as Steel Dynamics entered a new century. At a time when many steelmakers were suffering, Steel Dynamics reported glowing financial figures for 2000, with profits up 36 percent to $54 million and sales up 12 percent to $693 million. Recessive economic conditions entangled the company the following yearbut compared to the injuries suffered by many of its rivalsthe problems were minor. Between 1998 and 2001, 19 steelmakers filed for bankruptcy, a figure representing 25 percent of U.S. capacity. For further relief, Busse and his management team could compare their companys performance against that of Nucor. According to analysts at Morgan Stanley Dean Witter, Steel Dynamics was recording an operating profit per ton of $55 compared to Nucors average of $43 per ton.

Management pressed boldly ahead in 2001, even as the companys growth abated. In May 2001 the company began constructing a $315 million structural steel and rail mill in Columbia City, Indiana. Construction of the plant progressed well ahead of schedule, according to Busse in the April 22, 2002 issue of American Metal Market. Completed in May 2002, the new facility was expected to produce approximately 200,000 tons of structural products by the end of the year. Construction and equipment installation for the rail portion of the mill were slated for late 2002, with rail production scheduled for early 2003.

The completion of the new mill in Columbia City represented only one of the highlights enjoyed by Steel Dynamics in 2002. Financial vitality returned, resuming the prolific pace of growth that had characterized the late 1990s. In the second quarter of 2002, the companys net income reached $17.7 million. For the first six months of 2002, Steel Dynamics net income more than tripled on a 22 percent increase in sales, providing strong indications that robust growth lay in the companys future. As Busse prepared for the companys second decade of existence, he began to contemplate growing Steel Dynamics through acquisitions. We are looking at other good companies, he informed American Metal Market on February 4, 2002. Weve talked to a number of people and looked at a lot of things. That [acquiring companies] may be the way to grow in the future.

Principal Subsidiaries

Iron Dynamics, Inc.

Principal Competitors

Commercial Metals Company; Nucor Corporation; United States Steel Corporation.

Key Dates:

Three Nucor Corporation executives form Steel Dynamics.
The thin-slab minimill in Butler, Indiana, begins commercial operation.
Steel Dynamics reports its first annual profit.
Construction of a structural steel and rail plant begins in Columbia City, Indiana.
The Columbia City plant begins operation.

Further Reading

Balcerek, Tom, Despite Late Slump, SDI Stays Profitable, American Metal Market, February 6, 2002, p. 3.

Creswell, Julie, Americas Elite Factories, Fortune, September 3, 2001, p. 206.

Petry, Corinna C, Wall Street: Grist for the Mill?, American Metal Market, November 20, 1996, p. 2.

Robertson, Scott, SDI Lays Out Plans: Open, Restart, Expand, American Metal Market, April 22, 2002, p. 4.

, Seven Years Later, SDIs Keith Busse Still Itches to Grow, American Metal Market, February 4, 2002, p. 10.

Steel Dynamics Boosts Income, Sales, American Metal Market, February 2, 2000, p. 2.

Steel Dynamics Logs Record Sales, Shipments, American Metal Market, July 12, 2002, p. 3.

Teaff, Rick, Steel Dynamics Money Set; Finishing Mill Projects Cost Climbs to $190 Million, American Metal Market, August 18, 1995, p. 2.

Jeffrey L. Covell