“Integrated” steel mills create steel from raw materials. They use the Bessemer process to transform raw materials into enormous amounts of steel. The plants are giant, inflexible, dirty, and expensive to erect and run.
Ken Iverson worked at the Nuclear Corporation of America (eventually, Nucor), a conglomerate of assorted businesses pulled together by activist investors to preserve tax writeoffs in the mid-1950s. Arguably, the first thing erected by Nurcor was a tax shelter.
Eventually, Ken Iverson was appointed CEO and realized Nucor had only one profitable business, Vulcraft, a steel fabricator focused on joists. Iverson focused on the Vulcraft business, shutting down the unprofitable businesses.
By the late 1960s, Iverson decided that the terms and conditions large steel mills sold steel were unreasonable. Iverson decided to create his own steel.
However, creating a fully integrated steel mill was expensive and cumbersome. Nucor, with their one business, did not have the capital to build an integrated mill even if they wanted to.
In contrast, Iverson realized there was a surplus of scrap steel he could melt down and purify. Rather than creating steel from scratch, he’d create steel from scrap.
In 1969, he created the first mini-mill to create fuel for Vulcraft but quickly expanding to sell steel to other businesses.
Soon enough, his mini steel mill, or minimill, became competitive with integrated mills that make steel from scratch.
Not long after that, they surpassed the large integrated mills. Mini-mills, that rely on recycled metal, were more flexible than the large mills. If a large order came in, they could melt down more steel. When times were slower, they could melt less steel. There was no need to perpetually operate since there was not an enormous amount of infrastructure — including enormous smelters — which need to continually function.
Further, minimills cost far less to startup and operate than full-fledged steel mills. Iverson purchased his first blast furnace for only $6 million (about $40 million in 2019, but still far cheaper than creating an integrated steel mill from scratch).
Besides costing less, mini-mills are environmentally better. They use far less fuel, do not require mining raw materials, and empty junkyards of scrap steel.