Author Archives: Lisa Reisman

Grain-oriented electrical steel (GOES) prices fell for the second month in a row, with multiple large power equipment manufacturers requesting exclusions from the Section 232 tariffs.

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What makes these requests noteworthy involves the arguments made by each of the firms. One of the most interesting arguments pits two different firms on opposite ends of the national security argument – Eaton Corp (parent company of Cooper Power Systems) and AK Steel.

The Section 232 exemption request form asks a specific question with regard to whether the steel is used to support national security requirements. Cooper Power responded by stating the materials in the exemption are used to make transformers for the electrical grid, of which infrastructure is considered essential to national security: “This product allows Cooper Power Systems, LLC to meet federally maintained efficiency requirements in Liquid Filled Transformers as published by the D.O.E.”

The Cooper Power request involved, “chemically etched or mechanically scribed Domain Refined Grain Oriented Electrical Steels, capable of retaining domain refined properties post anneal, used in the manufacture of Distribution Transformers,” according to its exemption request. Cooper Power argued “the only domestic producer of electrical steels in the U.S., does not manufacture a Domain Refined Electrical Steel capable of being annealed after Transformer core production, while still retaining the Domain Refined properties.”

Ironically, Metglas, and not AK Steel, offered a rebuttal to the Cooper Power exclusion request that specifically addressed alternative products, notably amorphous ribbon, that could meet DOE requirements. Metglas also challenged the volumes Cooper Power had indicated – specifically that the volumes requested in the exclusion far exceed Cooper Power’s actual volume requirements.

Meanwhile, ABB’s exclusion request cited insufficient U.S. availability of 27M-0H, which it claims is not manufactured in the U.S. (This grade is high-permeability GOES.)

AK Steel — the only mill that challenged the ABB exclusion — made several arguments in its rebuttal, including:

ABB has moved away from several suppliers in the US and globally over the past few years. Changing suppliers and materials seems to be less of a concern to ABB when it achieves a financial return by purchasing foreign GOES. AK Steel is, and has been for many years, the largest supplier of GOES to the U.S. market. ABB knows AK Steel’s product very well and both ABB and its customers can plan to incorporate AK Steel GOES with little effort or hardship, just as they have in the past.

The company goes on to say, “As the largest domestic producer of GOES, a large percentage of transformers utilize AK Steel GOES products and it is a very well-known and broadly utilized product, both by ABB and their customers.” However, neither the buyer or supplier has explained fully why the GOES market appears more opaque than many other steel markets.

The Takeaway

In reality, power equipment manufacturers deploy a more multifaceted approach to the GOES sourcing decision. In fact, multiple GOES grades can meet various requirements as established by the DOE but the ultimate award decision made by a buyer considers many variables, such as: core loss, regulatory requirements, and the price arbitrage among alternative GOES products at any one given time. Together, these variables impact the buying decision.

From a sourcing perspective, manufacturers want and need the ability to maintain flexible sourcing options, not only to mitigate risk but to minimize the pricing power of a monopoly supplier. Moreover, the transformer market is dominated by global players who can easily shift production of transformer cores elsewhere (as they did after the unsuccessful 2014 anti-dumping case brought by AK Steel).

Buying organizations will continue to shift production away from the U.S. if the sourcing equation does not make economic sense. Regardless, should Big River Steel indeed move into this market —  as many hope that they will — AK Steel will need more than Section 232 to defend its market position.

In a subsequent post, MetalMiner will address the exemption request from Posco and the Section 301 tariffs.

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) coil price fell for the second month in a row from $2,857/mt to $2,763/mt. The MMI fell seven points from 207 to 200.

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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.

The headline news for grain-oriented electrical steel (GOES) involves the continued drop in total import levels into the U.S.

The U.S. had imported at least 2,500 metric tons per month since the start of this year, but after the announcement of tariffs, imports shrank to 411 metric tons in July.

However, some steel pundits speculate imports will begin to notch up, particularly for the wider steel market.

While total U.S. import volumes fell in July, Japan still held 59% of total import volume, up 1% from June’s import levels.

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In the meantime, companies continue to file exclusion requests.

Interestingly, only three companies have filed the bulk of exclusion requests for grain-oriented electrical steel and no firm received an approved exemption.

The only exclusions within the broader GOES HTS codes includes Nachi America Incorporated for hot-rolled M2 high speed steel sheet on the basis of insufficient domestic capacity.

Meanwhile, Electrical Mechanical Corporation filed approximately 34 exclusion requests for GOES M6 and M4, arguing that longer lead times from the sole domestic supplier, AK Steel (2-3 times longer) have led to increased manufacturing costs, delayed shipments and a weaker competitive position in the market.

So far, companies have filed nearly 25,000 exclusion requests and MetalMiner is aware of some companies obtaining exemptions — approximately 1,400-plus exemptions have been granted — but none have been for GOES.

AK Still Looking for Import Relief

In AK Steel’s most recent earnings report, on a trade update slide the company pointed to not only GOES products but also stated that it is, “Critical that downstream electrical steel products be adequately addressed.”

Next month, MetalMiner will address 301 exemptions, which also include GOES.

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) coil price fell from $2,914/mt to $2,857/mt. The GOES Monthly Metals Index (MMI) fell four points from 211 to 207.

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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.

The GOES Monthly Metals Index (MMI) jumped by 14 points, marking the second consecutive monthly increase. The increase came as a result of tightness globally for thin gauge material, Section 232 import tariffs and healthy global demand.

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Japan excels at the production of thin gauge material used to improve transformer efficiency. Last month, MetalMiner reported Japanese mills sought to raise prices for the second half of this year by $100+/ton. A recent TEX report suggests European mills will seek similar increases for the second half of this year for middle-grade materials.

That leaves the sole domestic producer, AK Steel, in a strong position to ask for price increases for 2019 as buying organizations come back into the market for contract pricing. Meanwhile, Big River Steel earlier this year announced plans to produce grain-oriented steels, including H1B. The company, according to its website, wanted to first produce all of the nine grades of motor lamination steels and will now turn its focus toward grain-oriented electrical steel (GOES) and non-oriented electrical steel (NOES) – a welcome development to buying organizations.

Meanwhile, in early July, Nachi American Incorporated filed five additional exclusion requests for M2 materials. All of the materials within those exclusion requests appear within the standard product range for AK Steel. Nachi American a cited lack of sufficient availability as the reason for requesting the exclusion. The company currently imports its material from Japan.

South Korea, by way of negotiated agreement, remains exempt from the tariffs, though subject to quotas. However, according to International Trade Administration import data and MetalMiner analysis, South Korean imports make up only a paltry 26.3 tons. In other words, more imports from South Korea could come into the U.S. without the tariff.

GOES imports dropped dramatically since the Section 232 proclamation but Japan still represents the lion’s share: 

Source: ITA

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Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) coil jumped for the second straight month from $2,712/mt to $2,914/mt. The GOES MMI increased 14 points from 197 to 211.

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.

Based on a quick search of exemption requests to the Section 232 steel tariffs, the Department of Commerce received 9,935 requests as of press time. However, MetalMiner could not find any additional grain-oriented electrical steel (GOES) requests since last month, when Nachi American Incorporated filed four requests on grounds that the only domestic GOES producer can not produce in the widths required.

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 Before Trump’s May 31 announcement that country-specific exemptions for Canada, Mexico and the E.U. would no longer be honored, AK Steel announced a new, high-permeability GOES product family, Trancor X, “for use in high and ultra-high voltage power transformers. High permeability GOES products represent the most technologically-advanced and highest-efficiency electrical steels in the world,” according to the company.

Time will tell if this new product offering will make it more difficult for companies to challenge the Section 232 tariffs covering GOES. As of press time, AK had not published additional technical data on Trancor X.

Meanwhile, imports notched back up in May, as did imports from Japan: 

Source: ITA

New Round of Pricing

U.S. GOES M3 prices jumped 8% this past month while Japanese mills have begun their GOES negotiations for the second half of this year, with anticipated price increases of over $100, according to a recent TEX Report.

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Exact GOES Coil Price This Month

The U.S. GOES coil jumped from $2,474/mt to $2,712/mt. The MMI increased 18 points from 179 to 197.

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.

The MetalMiner GOES Monthly Metals Index (MMI) dropped nine points this month to 179. This price drop runs counter to the wider steel market in which prices continued to increase throughout April.

The U.S. grain-oriented electrical steel (GOES) coil price fell again this month, dropping 4.7%.

Not surprisingly, import levels dropped abruptly, going from over 3,000 tons in March to not even 1,000 tons in April.

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The Section 232 tariffs and 301 investigations have spooked importers.

Source: MetalMiner analysis of ITC trade data

Last month, MetalMiner reported that no buying organization had yet to apply for an exemption to the Section 232 tariffs. That changed this month as Nachi American Incorporated filed five exclusion requests citing lack of U.S. availability.

The exclusions covered:

  • 37mm X 600mm X 1830mm Hot Rolled M2 High Speed Steel Sheet
  • 14mm X 600mm X 1800mm Hot Rolled M2 High Speed Steel Sheet
  • 22mm X 350mm X 1500mm Hot Rolled M2 High Speed Steel Sheet (Cut Length)
  • 30mm x 406.40 x 2250mm M42 High Speed Steel Flat Bar
  • 69mm X 508mm X 1500mm Hot Rolled M2 High Speed Steel Sheet

The M42 falls under the tool steel category. Nachi American Incorporated imports these five grades from its parent company, Nachi-Fujikoshi Corp. of Japan. All five of the exclusion requests appear to cover products made in the U.S. However, the only U.S. producer of the M2 grades can only produce widths up to 920mm., according to published data.

What About the Section 301 Investigation?

The 301 investigation includes a number of grain-oriented electrical steel (GOES) products including those with HTS Codes: 72261110, 72261190, 72261910 and 72261990, basically “alloy silicon electrical steel (grain-oriented) of various widths.”

However, the 301 investigation does not include either transformer parts (8504.90.9546) or wound cores (8504.90.9542) both of which could come into the U.S. under current the prevailing market treatment.

No additional information has been released with regard to this investigation since our last monthly GOES article.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

 

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.

Last month MetalMiner made the following statement: “The impact on Grain Oriented Electrical steel buying organizations, MetalMiner believes, will not exactly mirror the broader impact of the tariffs on commonly purchased steel forms, alloys and grades.”

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We don’t always get it right but indeed, GOES M3 prices fell last month in comparison to across-the-board price increases for all or nearly all other carbon flat rolled product categories.

Meanwhile, although MetalMiner knows of one buying organization pursuing an exclusion request via the recently published exclusion process, no company has yet to file one (at least as of April 11). That will change as GOES imports continue to arrive.

This month import levels jumped, as did Japanese imports, in particular.

Source: MetalMiner analysis of ITC trade data

Of note, Chinese imports remain negligible (240 tons) and no imports came from South Korea.

What About the Section 301 Investigation?

A quick search revealed that the 301 investigation also includes grain-oriented electrical steel with HTS Codes: 72261110, 72261190, 72261910 and 72261990 — basically “alloy silicon electrical steel (grain-oriented) of various widths.”

However, the 301 investigation does not include either transformer parts (8504.90.9546) or wound cores (8504.90.9542), both of which could come into the U.S. under current prevailing market treatment.

MetalMiner will update readers when/if President Trump publishes a proclamation on the 301 investigation.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

Exact GOES Coil Price This Month

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The Department of Commerce released both the process and requirements for the submission of exclusions for the steel and aluminum Section 232 proclamations made public on March 8, 2018.

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As published in the Federal Register, the Secretary of Commerce has the authority to grant exclusions from the duties, “if the steel or aluminum articles are determined not to be in a sufficient and reasonable available amount or of a satisfactory quality or based upon specific national security considerations.” (Editor’s Note: Italics added by MetalMiner for emphasis.)

The interim final rule went into effect on March 19, 2018.

Key Points About the Exclusion Process

Some of the key highlights of the interim rule include who can file for exemptions and who can file objections to exclusions.

First, according to the interim rule, “only individuals or organizations using steel articles in business activities or supplying steel to users in the U.S. may submit exclusion requests with respect to the Proclamation.” In other words, any non-metal-buying individual or organization can not argue nor ask for an exclusion.

However, any individual or organization in the U.S. can file objections to exclusions, but the Department of Commerce will only consider information directly related to a specific exclusion request. In other words, the DOC will ignore trade associations, lobbying groups, and media objections to an exclusion unless that objection is specifically tied to an exclusion request.

Exclusions apply on a product basis and can only be requested (and granted to) by the individual or organization that submitted the specific exclusion request. To clarify, unless the DOC approves a broader application of the specific request, each company will have to file its own exclusion request.

Taking that one step further, if additional companies seek exclusion requests for the same product, the company applying for the exclusion will not need to reference a previously approved exclusion, but can do so for its own exclusion request. Moreover, the interim rule allows for organizations and individuals to re-submit for a product exclusion, even if an earlier request is denied.

Buying organizations should note that all information included in an exclusion request is subject to public disclosure. This may prove challenging to buying organizations as some of the questions on the exclusion form appear quite detailed. For example, “all such physical properties must be defined based on actual rather than nominal measurements references to specific dimensions,” a requirement which may in fact begin touching on “secret sauce” types of information. This portion of the rule will likely receive negative market feedback during the open comment period for the interim rule.

Meanwhile, those that object to the exclusion will have 30 days to submit their objections.

Country-specific exemptions are not included in this interim rule.

Burden of Proof Appears to Lie With the Buying Organization

Companies purchasing more commodity-grade materials (i.e., standard forms, grades, alloys, sizes, etc.) need not bother with the exclusion process. However, MetalMiner sees several sub-segments of the market that will likely challenge the proclamations, particularly the markets for: grain-oriented electrical steel; tinplate; raw materials (slab, wire rod); some advanced, high-strength steels and ultra-high-strength steels, tire cord quality wire rod, etc. These individual companies purchasing these materials will each need to put their case forward.

“These requirements are much worse than trade case requirements,” said one company pursuing an exclusion to MetalMiner.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

Key Resources

The interim rule, comment and form to file a steel exclusion request or objection can be found here:  https://www.regulations.gov/docket?D=BIS-2018-0006.

The interim rule, comment and form to file an aluminum exclusion request or objection can be found here: https://www.regulations.gov/docket?D=BIS-2018-0002.

The impact of the president’s Section 232 proclamation applying a 25% import duty on all steel articles with HTS codes 7206.10 through 7216.50, will have a somewhat predictable impact on steel prices (they will increase, at least in the short term).

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The impact on grain-oriented electrical steel (GOES) buying organizations, MetalMiner believes, will not exactly mirror the broader impact of the tariffs on commonly purchased steel forms, alloys and grades.

But first, the reaction to the announcement of the steel tariffs from Roger Newport, the CEO of AK Steel, and the last remaining GOES producer in the U.S.: “We support President Trump for taking the bold action of imposing a 25% global tariff on steel to defend America’s steel industry and its workers from imports that threaten our national and economic security,” he said. “Nowhere is this threat more evident than in electrical steel where AK Steel is now the only domestic producer of electrical steel for electrical transformers. Years of surging imports and the subsequent market volatility caused the only other U.S. producer to exit the market in 2016. This action by the President could not come soon enough as the surge of electrical steel imports continued throughout last year, with imports nearly doubling in 2017 when compared to 2016.”  

GOES Markets Are More Nuanced Than Other Flat Rolled Products Markets

GOES markets serve as an example of where and how certain sub-segments of the steel industry will attempt to carve out exceptions and/or exemptions from the tariff proclamation — specifically, under point 11 of Trump’s proclamation.

MetalMiner believes that Japanese producers, along with their importing partners and customers, will petition the Department of Commerce for an exception by proving that certain highly engineered grades of electrical steel are not in fact produced in the United States.

The president’s proclamation identifies the procedure by which exceptions can be made:

The Secretary, in consultation with the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the United States Trade Representative (USTR), the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, and such other senior Executive Branch officials as the Secretary deems appropriate, is hereby authorized to provide relief from the additional duties set forth in clause 2 of this proclamation for any steel article determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality and is also authorized to provide such relief based upon specific national security considerations.  Such relief shall be provided for a steel article only after a request for exclusion is made by a directly affected party located in the United States.

Clearly, the impact of imports on the domestic GOES market has come on the back of rising and significant Japanese imports. China and South Korea are non-players for GOES into the U.S.

Source: International Trade Administration and MetalMiner Analysis

The real question involves whether or not customers of Japanese products will be able to prove that the materials they are buying from Japan, are indeed not produced in the U.S.

The president has mandated that the secretary of commerce issue procedures for requests for tariff exclusions within 10 days of the proclamation date (which was March 8).

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

Exact GOES Coil Price This Month

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Liquid steel.

Photollug/Adobe Stock

The Section 232 report and subsequent briefing by the president has put global metal markets in disarray. What makes matters potentially worse: the number of mainstream media sources latching onto a couple of claims from one particular study recently published by a for-profit research and consulting firm (as opposed to a think tank or governmental source).

The findings from this oft-quoted study build upon a prior study (February 2003) conducted by the same authors on behalf of a now defunct trade group, whose original findings were challenged by the U.S. government’s own analysis published by the USITC back in 2003.

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When MetalMiner inquired after whether the current report had been funded by any outside interests, the report’s author Laura Baughman replied via email, “No one funded this research.”

Regardless, the 2003 USITC governmental study examines the assumptions and methodologies of the original study conducted by Baughman and her colleague Dr. Joseph Francois.

The oft-cited finding from their latest report suggests the tariffs will yield a loss of 146,000 jobs. That estimation has been cited in articles by Fortune Magazine, The Washington Post, The Fabricator, AOL as well as other policy and non-profit organizations.

The problem with all of these citations is that nobody has quoted any findings from the only governmental research published on the impact on steel-consuming industries after the imposition of steel safeguard protections. Yet such a study not only exists, but also reveals the actual impact after the last time a U.S. president implemented steel safeguard protections, such as tariffs. This last occurred on March 20, 2002, under President George W. Bush.

So What Are the Key Government Findings?

Read more

(Editor’s Note: In case you missed the previous installments of this series, check out Part 1 and Part 2.)

What About the Impact on U.S. Production?

The U.S. Department of Commerce. qingwa/Adobe Stock

First, the recommendations from the Department of Commerce apply to both primary (or upstream) and downstream production.

The upstream production refers to unwrought production, while downstream production consists of processing aluminum into semi-finished aluminum goods (such as rods, bar, sheets, plates, castings, forging and extrusions). The U.S. remains remains the second-largest aluminum producer, just behind  China.

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The main objective of the actions proposed by the Department of Commerce focused on downstream production. As previously stated, the Section 232 outcome seeks to restore the industry to 80% capacity utilization.

Therefore, aluminum production could increase (at least, domestically). Increasing the domestic capacity utilization rate up to 80% would mean more aluminum will be produced and consumed domestically.

Aluminum Carve-outs?

President Trump has yet to determine if all the report recommendations will be applied. MetalMiner believes that even if the quotas/tariffs implemented are lower than that indicated in the Section 232 aluminum report — meaning a lower tariff and, therefore, a reduced capacity utilization rate — aluminum products may not receive as many exemptions as steel products.  

Contrary to steel, most aluminum products can be produced domestically and therefore, aluminum would potentially require fewer carve-outs than steel.

Timing becomes an issue when considering the impact of the Section 232 aluminum investigation outcome.

For the aluminum industry, restarting idled capacity takes around 9 months. After that, each smelter needs to start running toward its optimal capacity, which also takes time. Realistically it may take 12-15 months of time to reach optimal production.

Trump will need to consider that timing in his decision. Without careful consideration, reducing aluminum imports could have a negative impact for U.S. aluminum buyers in the short term. 

Therefore, the president might need to take this into account and give some time for the industry to adapt to the new measures.

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Trade Wars: Hype or Reality?

We will address this issue in an upcoming post.