In Light of AK Steel, ATI Anti-Dumping Case, Where Will GOES Prices Go?

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This is the second post in a two-part series examining the likely impact of the anti-dumping petition filed by US GOES producers AK Steel and Allegheny Technologies. Read Part One here.

Although many may feel the US trade case against foreign producers of GOES materials will likely go in favor of domestic US producers AK Steel and ATI, the case remains less than a slam dunk.

(Meanwhile, MetalMiner’s monthly GOES MMI® registered a value of 210 in February, a 5 percent drop from January’s 221 reading.)

GOES_historical_price_chart_February-2014_MetalMiner

Compare with last month’s trends – here’s our free January MMI® Report.

MetalMiner recently spoke with Ben Ehmcke, president of Ehmcke Consulting (who had previously served as the director of sourcing for Power Partners, a US transformer producer) to get his read on the trade case. “The anti-dumping rule may go against ATI and AK when you look at the amount of GOES imported vs. the total amount used in the US – the amount imported has been less than 5 percent,” he said.

“But the countervailing duties is where we’ll see a bigger penalty, because the way AK Steel has worded the petition, it is against future damage to them,” Ehmcke continued. “And with the new 2016 standards for the US, the transformer companies will definitely be looking at foreign steel to augment anything that they are getting from the US. The countervailing duties will place larger penalties on foreign mills.”

And After the Trade Case?

The next battle within the GOES industry will likely involve ‘Buy America’ provisions. According to Ehmcke, smaller transformer producers have received requests from their customers to identify the sources of raw materials, particularly the electrical steel. The domestic producers may become aggressive in pursuing Made-In-America to prevent the outsourcing of core production and use of foreign steel.

In the mills’ defense, added Ehmcke, if foreign-made cores come with foreign-made steel, we have put the entire US electrical grid in foreign control.

NAFTA Debate Brewing

We could probably write an entire analysis on whether transformer cores coming into the United States from a NAFTA country would qualify as duty-free under NAFTA. Suffice to say that some debate exists on whether the slitting and annealing of electrical steel and making it into a core would generate enough value-add. Moreover, according to Ehmcke, any utility that receives public monies or government subsidies will likely have to comply with Buy America provisions.

What That Means for Domestic Pricing

Some, including Ehmcke, believe we will begin to see an escalation of GOES prices within the US, though world prices will likely stay somewhat depressed due to oversupply. Our February MMI data suggests still-falling domestic spot prices, despite rising surcharges from both AK Steel and ATI.

What This Means for Metal Buyers

We suspect domestic-only buyers should plan for a budget increase for their GOES spend for the longer term, but the domestic producers will remain pressured to grab as much volume as possible, so MetalMiner doesn’t view a price hike as a given. The domestic mills may cut somewhat attractive deals for longer-term, higher-volume contracts should some of the transformer market decide to move offshore.

The US grain-oriented electrical steel (GOES) coil price was down 0.6 percent over the month.

Don’t forget to read January 2014 MMI analysis before February’s full report comes out next week!

The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.