Average grain-oriented electrical steel surcharges fell for the third year in a row. 2016 average surcharges took the biggest hit because Allegheny Technologies stopped production of GOES. AK Steel did not implement a surcharge until July 2016.
Our own GOES M3 MMI showed only small price movements from month to month. The index hit a low of 181 back in July and today shows a modest recovery to 192, a 5% gain.
GOES follows its own fundamentals (e.g. supply and demand) and does not always follow the price arc of other more common forms of steel such as cold-rolled coil or hot-rolled coil. In fact, some of the wider trade dynamics for those forms of steel had little to no impact on GOES.
Which brings us to a larger issue. Will President-elect Trump, who is arguably pro-steel and who has gone on record against China’s trade practices, implement any policies that will likely impact GOES markets?
To begin, the nature of trade between the two countries, the U.S. and China, appears more complicated than what can be seen by the naked eye. Raw material/commodity-like supply chains lack the complexities of supply chains found in industries such as electronics. Blanket tariffs are easy to issue and calculate for commodities that move from point A to point B. But electronics industry supply chains involve components, parts, sub-assemblies, final assembly, etc. across multiple countries and locations. A blanket tariff on electronics will harm China much more than other countries as the tariff would apply to the “final point of assembly.” This could create all sorts of electronics shortages and problems here in the U.S.
Why Are We Discussing Electronics Supply Chains?
Because it would be easier to get tougher on China for commodities such as steel. And though China has curbed excess capacity in recent years, we could see a scenario in which tough trade policies such as a tariffs could significantly limit Chinese imports, which currently make up about 10% of domestic steel demand according to a recent analysis by Stratfor.
China will retaliate but a scenario exists that China could account for far less steel imports into the U.S. than it currently does (China has cut excess capacity already). In terms of grain oriented electrical steel, however, China does not represent the bulk of GOES imports into the U.S., in fact, Japan, Russia and the U.K. are far bigger GOES exporters to the U.S.
Therefore, any President Trump trade policy that goes into effect (no pun intended) will likely have a bigger impact on the broader steel markets and a far less significant impact on the U.S. GOES market.
Next month, we will examine the potential impact of NAFTA changes on GOES markets.
Grain-Oriented Electrical Steel M3 retook last month’s loss rising by more than 3%.