Page 66 - ENTREPRENEURSHIP Innovation and entrepreneurship

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Source: Incongruities 59

though the demand for steel appeared to be going up steadily, at least
until 1973.
The explanation of this incongruity has long been known. The
minimum incremental unit needed to satisfy additional demand in an
integrated steel mill is a very big investment and adds substantially to
capacity. Any expansion to an existing steel mill is thus likely to oper-
ate for a good many years at a low utilization rate, until demand—
which always goes up in small, incremental steps except in
wartime—reaches the new capacity level. But not to expand when
demand creeps up means losing market share, and permanently. No
company can afford to take that risk. The industry can therefore only
be profitable for a few short years: between the time when everybody
begins to build new capacity and the time when all this new capacity
comes on stream.
Further, the steelmaking process invented in the 1870s is funda-
mentally uneconomical, as also has been known for many years. It
tries to defy the laws of physics—and that means violating the laws
of economics. Nothing in physics requires as much work as the cre-
ation of temperatures, whether hot or cold, unless it is working
against the laws of gravity and of inertia. The integrated steel process
creates very high temperatures four times, only to quench them again.
And it lifts heavy masses of hot materials and then moves them over
considerable distances.
It had been clear for many years that the first innovation in
process that would assuage these inherent weaknesses would sub-
stantially lower costs. This is exactly what the “mini-mill” does. A
mini-mill is not a “small” plant; the minimum economical size pro-
duces around $100 million of sales. But that is still about one-sixth
to one-tenth the minimum economic size of an integrated steel mill.
A mini-mill can thus be built to provide, economically, a fairly small
additional increment of steel production for which the market
already exists. The mini-mill creates heat only once, and does not
quench it, but uses it for the rest of the process. It starts with steel
scrap instead of iron ore, and then concentrates on one end product:
sheet, for instance, or beams, or rods. And while the integrated steel
mill is highly labor-intensive, the mini-mill can be automated. Its
costs thus come to less than half those of the traditional steel
process.
Governments, labor unions, and the integrated steel companies have
been fighting the mini-mill every step of the way. But it is steadily