A win-win for Nucor, South 32 and DJJ

Forget the ethics and legal questions, the South 32/DJJ/Nucor deal could make a lot of commercial sense if you think about it. For starters, South 32 is a manganese ORE miner first and a smaller and unprofitable manganese alloy producer. Most of its revenues and underlying EBIT [fiscal 2016: Australia, $476-million and $67-million, South Africa, $166-million and ($13)-million] came from ore rather than alloys [$129-million, ($2)-million in Australia and ($34)-million in South Africa]. Basically, manganese alloys only produced losses.

Manganese alloy production for fully integrated Western producers is a fast way to lose money. South 32 only cares about ore but is stuck with smelting manganese.

There are TWO very large manganese alloy customers, ArcelorMittal, which is under contract to South 32, and Nucor. South 32’s main job it to get as much of Nucor’s business as possible, possibly to the exclusion of every other US manganese alloy consumer.

So South 32 signs a contract to supply Nucor through DJJ and locks in the largest US consumer. Maybe DJJ can’t sell to the other large US steel mills because of the DJJ connection, but does it really matter? It has the largest US consumer and can possibly pick up some profitable smaller accounts.

Nucor saves money by using DJJ, South 32 saves money by locking up Nucor, and DJJ benefits by selling South 32 material elsewhere along with some smaller accounts.

 

 

Leave a Reply

1 Comment on "A win-win for Nucor, South 32 and DJJ"

Notify of
avatar

This site uses Akismet to reduce spam. Learn how your comment data is processed.

dave
Guest
On the other side You don’t choose your largest customer to represent you – This is like economics 101- it makes no sense your agent is drawing the price down with small sales to help their parent companies formula purchases There are a limited amount of potential customers – a number of them are really upset about south32/djj – no reasonable producer would upset half their potential customers and be in a position where they reduce the amount of potential customers by 50% – At some stage they will need to sell to other customers so why cause any potential… Read more »
wpDiscuz