How Allegheny Technologies’ Flat-Rolled Product Closures Impact GOES Prices

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Last week Allegheny Technologies, Inc. (ATI)  announced it intended to “rightsize and align” its flat-rolled products operations. The announcement included the idling of a standard stainless steel melt shop and sheet finishing operations out of its Midland, Pa., facility and the idling of its grain-oriented electrical steel (GOES) operations located in Bagdad, Pa.

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The operations will be idled in January and April, respectively.

Will ATI exiting the GOES market mean higher prices for transformer cores? Source: Adobe Stock/yuttana590623

Will ATI exiting the GOES market mean higher prices for transformer cores? Source: Adobe Stock/yuttana590623.

So what does this mean for capacity, production and prices? MetalMiner will assess the impact of these closures in two parts.

Grain-Oriented Electrical Steel Closure Caught Some By Surprise

According to MetalMiner’s industry sources, key customers — some of whom had recently negotiated LTAs (long-term agreements) with ATI — received only a couple of days’ notice that production would cease. These customers, however, will not have any difficulty in finding alternative imported supply or domestic supply from AK Steel.

The closure likely had more to do with ATI’s inability to secure more LTA business, as opposed to spot business. LTAs provide guaranteed demand and allow producers to better forecast production economics. In addition, both domestic producers sought higher prices for 2016 (i.e. higher than import prices) and we speculate that several bigger buying organizations simply refused to accept the higher prices. Without enough LTAs in hand to secure acceptable capacity utilization rates, ATI decided instead to shut down its line.

AK Steel remains the larger of the two domestic producers. Some believe Allegheny only produced about 50,000 tons per year.

In the meantime, buyers have told MetalMiner that AK Steel does not believe ATI’s exit from the market will impact AK’s ability to meet demand. Some have suggested supply could tighten a bit during the second half of the year, particularly if demand picks up, but AK will try and pick up as much new volume as it can, because it has not been running all of its equipment. AK Steel will receive a small price premium to imports.

The Bottom (Price) Line

Buying organizations will still be able to access competitively priced GOES materials, though their supply chains will extend somewhat to accommodate non-domestic sources.

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While Japanese materials (non-commodity grades such as MOH or HI-B) remain in tight supply, the commodity grades of GOES (M3 – M6) still remain in healthy supply from other countries around the world — but buying organizations may wish to revisit long-term contracts from a risk management/supply assurance standpoint.

My colleague, Katie Benchina-Olsen, will cover this story from a stainless steel perspective tomorrow.

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