Author Archives: Lisa Reisman

GM workers this week went on a nationwide strike, the first since 2007 at the Big 3 automaker (pictured: the ACDelco and GM Genuine Parts processing center in Burton, Michigan, which opened in August 2019). Photo by Jeffrey Sauger for General Motors

Nothing entertains me more than receiving an oddball inbound phone call, email or, in this case, text message when something hits metals markets.

A great inbound came in yesterday regarding the nationwide strike at General Motors, which could have an impact on steel prices.

The question, “Do you think the GM strike will pull the market down further?” resulted in an immediate reply, “I don’t follow the stock market as closely as I do commodity markets.”

To which this large steel buyer replied, “I’m talking steel market, not stock market.”

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Now, that’s a very good question!

Let’s do a quick calculation to assess impact. I feel like I’m interviewing for a big consulting firm and they have given me my first case study — “how would you calculate the GM strike’s impact on steel demand?”

So, here goes:

  1. GM produced 8.4 million cars in 2018.
  2. According to the God of Google, 2,138 pounds of steel (on average) are in every car/truck produced by GM.
  3. So, 8.4 million cars annually multiplied by 2,138 pounds of steel — we converted the 2,138 to 1.069 short tons — equals 8.98 million short tons of steel.
  4. The average automotive OEM operates 365 days a year, less a mandatory two-week shutdown — so, 365 minus 14 equals 351 operating days.
  5. That means GM’s strike would hinder steel usage by 25,582.9 tons (on average) per day.

Given that the U.S. market consumes about 110 million tons annually, and GM’s share represents about 8% of domestic steel production, it would take a 39-day strike to lower demand by 1 million tons, or 1%.

Does that mean the GM strike could cause steel prices to plummet or fall further?

Not likely.

However, coming into annual contract negotiation season, buying organizations should certainly take heed of underlying steel price momentum.

Fundamentals do not drive metal prices, as we have long noted, but they may provide some leverage to other large buying organizations.

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Of course, if you disagree with this analysis, leave a comment!

Bombardho/Adobe Stock

A 15-year trade dispute between Airbus and Boeing could send copper prices skyrocketing, with an even greater impact on U.S. manufacturers than the Section 232 tariffs had on steel and aluminum. MetalMiner has long covered this current dispute between Airbus and Boeing.

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Last year, the U.S. claimed victory in the dispute, essentially setting the groundwork for retaliatory tariffs against European imports. Though it took some time to go through an appeals process, Bloomberg has reported that tariffs appear imminent and, as a result, the U.S. copper industry has been galvanized into action.

The tariffs apply to a wide range of products, including hundreds of items unrelated to airplane parts, including cheese, whiskey and wine.

However, the following copper alloys and products could face a 100% — that is not a typo — duty if coming from the E.U.:

  • 7407.10.50: Refined copper, bars and rods
  • 7407.21.90: Copper-zinc base alloys (brass), bars and rods nesoi, not having a rectangular cross section
  • 7409.11.50: Refined copper, plates, sheets and strip, in coils, with a thickness over 0.15 mm but less than 5 mm
  • 7409.21.00: Copper-zinc base alloys (brass), plates, sheets and strip, in coils.
  • 7409.29.00: Copper-zinc base alloys (brass), plates, sheets and strip, not in coils.
  • 7409.31.50: Copper-tin base alloys (bronze), plates, sheets and strip, in coils, with a thickness o/0.15 mm but less than 5 mm and a width of 500 mm or more
  • 7409.31.90: Copper-tin base alloys (bronze), plates, sheets and strip, in coils, w/thickness o/0.15 mm but less than 5 mm and a width of less than 500 mm
  • 7409.40.00: Copper-nickel base alloys (cupro-nickel) or copper-nickel-zinc base alloys (nickel silver), plates, sheets and strip, w/thickness o/0.15 mm.
  • 7409.90.90: Copper alloys (o/than brass/bronze/cupro-nickel/nickel silver), plates, sheets and strip, w/thickness o/0.15mm but less than/5 mm and width less 500 mm
  • 7410.11.00: Refined copper, foil, w/thickness of 0.15 mm or less, not backed

These alloys cover 16% of the U.S. copper market, according to the Precision Metal Forming Association, and go into a broad range of industries, including electronics, automotive, aerospace, agribusiness, defense and home appliances.

In fact, the Bureau of Economic Analysis estimates these sectors represent approximately $1.7 trillion in U.S. output annually, according to testimony delivered Aug. 5 by ABC Metals President Dan Kendall.

In the Section 232 steel and aluminum exclusion requests, some companies received exemptions where no domestic supply exists. That scenario certainly applies to some copper alloys — nobody produces the C101, C102, C103 up to C110 (oxygen-free copper) grades, nor does the U.S. cast C500 series (phosphor bronze).

The copper industry, unlike the steel and aluminum industries, has already heavily consolidated. As Kendall explained at the hearing with regard to a monopoly in copper supply:

“On July 16th, Wieland Metals, headquartered in Germany, completed its acquisition of Global Brass & Copper, the last remaining US-owned brass and copper strip manufacturer. Prior to that, on May 28, Olin Brass, a division of GBC (which was about to be acquired by Wieland), petitioned the USTR for inclusion of these metals for tariff protection that are sourced in Europe.”

Wieland has petitioned to essentially create a virtual U.S. monopoly of more than 23 copper alloys. Furthermore, Wieland has no quoted ABC Metals. (Wieland did ship 10,000 pounds, though certainly not enough to fill an order!)

Trump can’t be blamed for this set of tariffs. However, this 301 WTO case has the power to wreak havoc throughout many manufacturing supply chains.

OEM manufacturers will act quickly to reconfigure their supply chains to continue to access copper products competitively. They will likely move offshore for electronic production. In addition, the remaining domestic copper suppliers will raise prices because they can.

Product substitution in copper remains limited compared to other metals, such as aluminum and steel, particularly due to the tough mechanical and chemical performance criteria demanded by consumers such as Aptiv, Lear, Molex, TE (Tyco Electronics), Ford, Chrysler, Denso, etc.; few suppliers can meet such demands.

MetalMiner gives these tariffs a 50% probability based on the USTR recommendation to the administration, expected in September.

Domestic suppliers have already raised prices.

We remind readers, however, that nothing kills high prices like high prices.

Monopoly Pricing on the Horizon?

The Copper Monthly Metals Index (MMI) moved sideways in July, maintaining its value of 74.

While prices in the index lost some value, the declines were modest.

LME copper prices moved firmly sideways since early June. In July, the price hit a brief low of $5,823/mt and a brief high of $6,067/mt, trading within a band between $5,850/mt and $6,050/mt during most of the month.

Source: MetalMiner analysis of London Metal Exchange (LME) and FastMarkets

Copper tends to be a beacon for industrial metals trading, typically experiencing more pricing volatility due to macroeconomic conditions than other metals.

With the trade uncertainty around the U.S.-China relationship following the U.S. announcement of more tariffs, the copper price reacted and dropped in early August.

What This Means for Industrial Buyers

Trade conditions deteriorated somewhat in early August on the heels of the latest U.S. announcement of tariffs on an additional $300 billion in Chinese goods. As a beacon industrial metal, copper prices reacted by dropping.

Meanwhile, the U.S. implementation of 301 WTO tariffs of up to 100% on European copper product imports may result in serious ramifications for copper prices and related industrial organization needs.

In light of the shifting trade environment, industrial buyers will need to keep on their toes in August and as we move into the annual planning season for industrial metals buying.

It’s important for buying organizations to understand how to react to copper price movements. The MetalMiner Monthly Metal Buying Outlook report helps buyers understand the copper marketplace.

Actual Copper Prices and Trends

­­­Copper prices across the index weakened slightly this month.

The Indian copper cash price dropped 1.7% to $6.42 per kilogram.

Korean copper strip dropped 1.4% to $8.17 per kilogram.

U.S. prices in the index decreased in the range of 1.6%-1.7%, offsetting last month’s gains of a similar magnitude. U.S. producer copper grade 110 decreased to $3.43 per pound, grade 102 priced at $3.62 per pound and grade 122 at $3.43 per pound.

Chinese prices decreased in the range of 0.3%-1.7%. China’s copper wire price dropped by 1.3% to $6,802/mt. The primary cash price dropped 1.7% to $6,779/mt. Copper bar dropped by 1.7% to $6,767/mt.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Chinese scrap copper #2 decreased by 0.3% to $5,577/mt.

The Japanese primary cash price decreased by 0.4% to $6,138/mt.

The LME primary 3-month price decreased by 0.5%, falling to $5,950/mt.

Last week, the MetalMiner team visited JDM Steel in Chicago Heights, Illinois.

Every once in a while, the collective MetalMiner team takes a field trip to a mill, OEM or service center, just to make sure our virtual world knowledge has some grounding in the real world.

Our most recent trip took us to the industrial park that houses JDM Steel, a specialty flat-rolled carbon steel service center in Chicago Heights, Illinois, just outside of Chicago.

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In procurement school, we are taught to treat suppliers as commodities (OK, they call it procurement and supply chain management at university). However, in all truthfulness, we know that every company must have something special that makes them great.

JDM Steel is no exception.

When asked that specific question, Joe Orendorff, JDM’s vice president of purchasing — who could easily double as a Chicago restaurant tour guide — told us his company’s claim to fame is its ability to stretcher level flat-rolled steel, as well as their ability to clean coils on their SCS Line. The SCS Line is a mechanical brushing system that provides JDM customers with an alternative to pickled and oiled material. JDM also brushes P&O material, which ultimately provides the cost advantages of hot-rolled steel, but with the appearance, along with forming and fabricating characteristics,  more closely resembling cold-rolled steel.

Not every company needs to care about surface finish and flatness, but certain industries — including rail car and tank manufacturers, and electricity box makers, among others — require it.

What Orendorff and Account Manager Erin Wright didn’t know on our tour is that we like to probe to better understand how well the service center buys and whether that service center can come to the market from a cost-advantageous position.

Here are a few questions that we covered on our visit:

  1. What do you consider to be a good CRU discount?
  2. Do you have the mills quote you in dollars or percentages, and which do you use for contracting purposes?
  3. From how many mills do you source material? (We always ask how many tons are purchased annually.)
  4. How do you use scrap prices when making purchasing decisions?
  5. How does a smaller player buy as well as a larger player? (I will preemptively answer this by stating that JDM Steel joined the North American Steel Alliance as a founding member; thus, JDM aggregates its steel buy with other smaller service centers.)

Of course, we can’t disclose JDM’s responses, but suffice it to say that this company punches above its weight class, so to speak.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

We also typically conduct a rapid fire “what did you learn?” session among ourselves after a field trip. Here is what members of our team had to say after the trip to JDM:

  • Belinda Fuller (Forecast Analyst): “It was a great experience to visit JDM in person to watch as commodity grade steel gets metamorphosed into specific steel sheet products as needed for various applications, including getting to see beautiful, application-ready finishes made directly from coil.”
  • Marcos Brioni (Principal Data Analyst): “Based upon high-end quality management and conscientious supplier selection, JDM offers high-standard steel products for its customers. JDM’s machinery balances novel and traditional procedures for exceptional, tailor-made offerings.”
  • Cassandra Weiler (Client Services Manager): “The staff at JDM are very knowledgable on the industry and metal market trends. They have found a niche market with their HRC scrubbing technology to make beautiful pieces of metal. All this, plus a good sense of humor from every staff member we met!”
  • Fouad Egbaria (MetalMiner Editor): “It is always enlightening to see how companies of all kinds leverage their processes to, as Lisa put it, ‘punch above their weight class.’ JDM is certainly an example of just that.”
  • Lisa Reisman (Executive Editor): “What in the world was I thinking about wearing white jeans to a service center?”

If you ask 100 procurement professionals whether or not the Section 232 steel and aluminum tariffs have helped or harmed them, 100% will say the tariffs harmed them.

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After fielding hundreds of calls from metal-buying organizations this past year, we here at MetalMiner can definitely say that metal-buying organizations have felt “tariff pain.”

But at the same time — and there is a big but — many companies mitigated much, if not all, of that price risk by deploying effective sourcing strategies.

The recent press attention given to the alleged “harmful effects” of Section 232 tariffs on aluminum and steel on consumers and businesses appears to be ill-informed.

Before we dive into the details, let’s set the record straight on where steel and aluminum prices appear today, where they were when tariffs went into effect and where they were before tariffs.

Let’s start with hot-rolled coil (HRC):

Source: MetalMiner IndX(SM)

Wait a Second, Rewind…

Two points if you said “wow, it looks like steel prices reached similar highs in 2011.”

To be fair, tariffs did lift steel prices in 2018 to 10-year highs, but prices have declined steadily since last July (four months after tariffs went into effect).

Today’s price levels now appear within the same range in which they traded back in 2011-2015. It’s hard to see how the consumer faces a hefty bill for HRC prices due to tariffs now or for any prior extended length of time.

A similar price dynamic applies to cold-rolled coil (CRC), with a little twist:

Source: MetalMiner IndX(SM)

What’s the twist, you might ask?

Read more

[Editor’s note: This is the third and final part of our series on tariffs. In case you missed them, read Part 1 and Part 2.]

Dmitry/Adobe Stock

2002 Bush Section 201 Steel Tariffs

All of this background analysis brings us to the heart of the current debate: are the tariffs “bad” for the economy and manufacturing?

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The only trade study published on tariffs that measures actual impact — as opposed to using models to support claims — sheds some light.

As previously reported by MetalMiner, a 2003 study used primary research with 419 steel-consuming companies, as opposed to econometric modeling.  At the time, this represented fully 22% of all steel purchased by companies in the U.S. That study concluded “overall employment of steel-consuming industries generally fell or remained flat in 2002-03” compared with the previous two years, but that productivity and wages increased over the three-year period.

Moreover, the study noted a $30.4 million GDP loss — not nothing, but insignificant against the total.

Perhaps most ironically among steel-consuming companies, “overall sales and profits increased, while capital investment fell, for most steel-consuming industries in 2002-03 – the period after the implementation of the safeguard measures.”

Not all results were positive.

Half of industry respondents reported higher steel prices and 43% said that they could not pass those costs onto their customers. Some reported that producers broke contracts.

Finally, 32% of respondents saw higher lead times, while 46% of respondents noted difficulties in obtaining materials.

Which Brings Us Back to the ‘Model’ Studies…

The use of models remains inherently flawed because most models require the use of forward-looking data and assumptions.

The Coalition for a Prosperous America conducted a trade study that generated different results from the Koch study, primarily by taking into consideration actual baseline GDP and total employment data, and CBO forecasts for GDP and employment (the CBO is considered by policy wonks to be the most neutral of all economic reporting government entities).

That study also factored in industry plans and announcements from the steel industry and used the Regional Economic Modeling Inc’s (REMI) model, which is used widely by think tanks, state and local governments, etc.

Other Government Research Debunks Broader Negative Tariff Impact Claims

A Congressional Research Service (CRS) analysis points to negative impacts from the tariffs on steel and aluminum. That analysis, however, suggests a much narrower range of impacts from higher prices of steel and aluminum to lower imports of those same commodities.

The study also claims input costs will rise for downstream manufacturers. Certainly, prices have risen with the imposition of the tariffs. However, nobody has conducted research to determine if manufacturers could pass down costs and/or if their profits were lower, higher or about the same as prior to the tariffs.

In other words, have the higher prices actually impacted GDP and employment data?

The CRS study suggests the two biggest variables to consider relates to downstream prices and availability of imports, which will depend upon the range of product and country exclusions and the degree to which other countries retaliate.

Regardless, the ISM Report on Manufacturing released in December, which also relies upon primary research with downstream manufacturers, reported: “Despite U.S. tariffs on foreign steel and aluminum, prices for those key materials have declined, executives said.”

Those price declines mirror current commodity market conditions in which the overall bull market appears to have run out of steam. MetalMiner’s long-term outlook for both commodities and industrial metals shifted from bullish to bearish back in December 2018 and January 2019, respectively.

It’s easy to glob onto the mainstream trade war discourse and assume the widely circulated studies must serve as the whole truth. The truth, however, requires the media and the public to acknowledge real anti-tariff media bias, the actual overcapacity conditions that led to the imposition of Section 232 in the first place, and the impacts measured post-tariff as reported by those that actually, as opposed to theoretically, felt the impact (e.g. downstream manufacturing organizations).

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The “war” on trade requires all of us to dig deeper and perhaps seek to learn what we don’t know.

[Editor’s Note: This is the second part of our three-part series on how tariff impacts — positive or negative — are perceived, the history of Section 232, and China’s role in the global steel marketplace (and how that has affected the U.S.). In case you missed it, Part 1 can be read here.]

The Bush tariffs of 2002 came as a result of a Section 201, as opposed to a Section 232 investigation. The Trade Act of 1974 covers Section 201 investigations, whereas Section 232 derives its authority as part of the Trade Expansion Act of 1962, based on national security grounds.

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MetalMiner conducted an analysis of every single Section 232 case initiated since the passage of the Trade Expansion Act of 1962. The results suggest market observers need to dig into the details further to see why various presidents have taken action on imports of particular commodities, as well as what types of action they have taken.

Section 232 has been invoked 26 times.

Source: MetalMiner analysis of ITC data

Of the seven times in which a primary metal industry initiated a Section 232 investigation, in only one case — this most recent one — did the president determine action was necessary to adjust imports. However, in one of the cases, President Ronald Reagan agreed to update the National Defense Stockpile.

Of the seven times in which a derivative metal industry (nuts, bolts, bearings, parts) initiated a Section 232 investigation, in no cases did the president conclude action was necessary to adjust imports. However, in one case, for metal cutting and metal forming machine tools, Reagan deferred a decision on Section 232 and instead sought voluntary agreements with foreign suppliers; indeed, one went into effect for a period of five years and was extended for two additional years.

In all other cases, the only industry that received Section 232 relief has been petroleum or oil. Now that the U.S. has achieved energy independence, MetalMiner suspects the U.S. will not see a case made under Section 232 for this commodity (so long as the U.S. remains energy independent).

The U.S., however, is not steel independent, meaning the U.S. does require some level of imports to satisfy domestic demand.

Historical analysis suggests the U.S. has filed about the same number of anti-dumping cases today as it did in the late 1950s-1970s. The difference today, though, comes down to the imposition of duties; far more are implemented today than during that earlier time period.

Logically, as tariffs have steadily declined, imports have grown, while today the number of products targeted for anti-dumping measures has declined since the 1980s.

What Has Changed and Why Should Anyone Care?

In a word: China.

In 1960, China produced a total of 18.5 million tons of steel, whereas the U.S. produced about 6 million tons. Incidentally, the price of a ton of steel in 1962 was $144/ton — or $1,180/ton in today’s dollars!

It wasn’t until 1996 when China first produced 100 million metric tons of steel. And the real growth happened after China ascended to the WTO in 2001, growing steel production from 128.5 million metric tons in 2000 to nearly 495 million metric tons in 2007.

Source: MetalMiner analysis of World Steel Association data

Obviously, as China’s economy began to grow, steel demand also grew. Any market observer would also expect production to increase to support economic growth.

Perhaps the more interesting statistic to examine is production against demand. By looking at the production figures above, one might assume that demand also steadily increased since 2007.

But did it?

Source: MetalMiner analysis of World Steel Association data

In a word: no.

China’s demand peaked in 2013 at 772 million tons, declined and then reached 767 million tons in 2017, whereas China produced 779 million tons in 2013 (a little higher than demand). But in 2017 China produced 831.7 million tons for a surplus of 64.7 million tons.

2018 statistics show China produced more steel than any year in its history — 923 million metric tons, according to Reuters, against a demand projection that is at best flat to slightly up from 2017, based on a MetalMiner analysis. Assuming demand of 780 million tons, that would suggest a surplus of over 140 million metric tons.

U.S. demand and production, in contrast, appears paltry.

It should come as no surprise that the Trump administration has taken significant steps to shore up the domestic industry against Chinese imports.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

The only study that takes into consideration these factors, such as actual demand and actual supply, involved the original Department of Commerce studies on Section 232.

[Editor’s Note: This is the first part of a three-part series that will analyze the state of mainstream perspectives of the impact of tariffs, as well as delve further into the history of Section 232 and China’s role in the current trade dialogue.]

Consultants internally often pose a question to one another – do you want a client who knows he doesn’t know something, or would you rather have a client who doesn’t know what he doesn’t know?

It turns out that phrase came from the famed economist John Kenneth Galbraith, who actually used it to describe forecasters: “We have two classes of forecasters: Those who don’t know … and those who don’t know they don’t know.”

Most consultants (and forecasters) would likely argue one would rather have the former — it’s better to work with someone who knows he doesn’t know something than one who doesn’t know what he doesn’t know.

The same argument applies to trade and tariffs.

The mass media and much of the public has embraced the notion that tariffs are bad and continued “free trade” — with China — is good.

But is it? Does the mainstream press know what it doesn’t know?

We will come to this question shortly — but first, the conventional thinking.

Koch Companies Trade Study

According to a recent Koch Companies study on trade, the U.S. economy will see some very negative impacts on the economy as a result of President Donald Trump’s trade war, including:

  • Macroeconomic losses, which project declining GDP of 1.78% and a long-term impact in 2030 of 1.25%
  • Household financial losses of $2,357 per household in 2019, which compound to $17,276 in spending power over a 12-year time frame (2018-2030) in the form of lower wages, higher prices and lower investment returns
  • Increased unemployment
  • Production losses by 2030 modeled as a loss of 1% against the baseline for agricultural and services sectors and a manufacturing production decline of 2.5% from baseline

All of the above appear as reasonable conclusions one might make based on a standard methodology using the GTAP model and database, which ironically was the very same model used by the Department of Commerce to come up with the rationale for imposing Section 232 tariffs in the first place! Other countries have also used the GTAP model to formulate trade policies.

The Koch Companies’ study stands in good company. Multiple additional governmental and pay-to-play studies have come out arguing similarly against tariffs. Here are just a few:

So why in the world should we question these studies?

Because the studies don’t tell the whole story.

Media Bias, Not Fake News

Forget about fake news: legitimate studies have confirmed anti-tariff media bias.

A study conducted in 2005 — after the Bush steel tariffs of 2002 — sought to test a prediction that, “newspapers will devote more space to the costs of tariffs than to their benefits…” The study sampled 123 stories on trade from The New York Times and 177 stories from the Wall Street Journal (the stories ran during the Bush steel tariffs of 2002 from Jan. 1 through Sept. 10).

The WSJ also showed a “slant” toward free trade as measured by more sentences criticizing tariffs than supporting them, compared to The New York Times, according to the study methodology.

Not surprisingly, the results showed newspapers covered the “costs” of steel tariffs more than the benefits and the authors concluded the results suggest “that mass media will weaken the power of special‐interest lobbies relative to unorganized interests.”

Simply put, one should expect more anti-tariff media coverage than pro-tariff coverage.

Before we dive further into the studies, let’s re-examine the history of Section 232 and what cases have resulted in presidential trade action.

Part 2 of this series will be published Friday, Feb. 7. 

The partial government shutdown has meant large power equipment manufacturers and their suppliers can submit exclusion requests and comments, but the government’s main site that tracks such requests, regulations.gov, has not been updated since the shutdown began Dec. 22.

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Meanwhile, large power equipment manufacturers have negotiated for their 2019 contract requirements.

AK Steel did achieve some price increases, according to an industry source, likely due to the Section 232 tariffs. However, buying organizations still have the flexibility to shift production of wound cores to other locations, particularly Canada and Mexico.

Grain-oriented electrical steel (GOES) remains subject to both Section 301 and Section 232 tariffs.

Europe Set to Limit Steel Imports, Too

To stem the flood of imports that can no longer readily come to the U.S., the European Commission will vote on a measure next week to set quotas for 23 steel products, a list which includes GOES.

Similar to how the U.S. determines quota levels, the E.U. will take the average of the prior three years plus 5% and set a cap in which any volume above the cap will receive a 25% import duty, according to Reuters.

Interestingly, and different from how the U.S. sets quotas, the E.U. will set the quotas in three-month increments to prevent stockpiling.

China, however, has not served as a large exporter of GOES to the U.S. market:

Source: MetalMiner analysis of ITC data

MetalMiner does not see the European safeguard measure as having much impact on GOES prices. The measures will, however, help support European prices for other forms of steel.

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) M3 coil price remained flat moving slightly from $2,462/mt to $2,465/mt. The GOES Monthly Metals Index (MMI) moved up one point to 179.

MetalMiner’s Annual Outlook provides 2019 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.

For large power equipment manufacturers, Section 232 comes down to two little words: core loss.

The GOES M3 Monthly Metals Index increased 1.1% to a value of 178 for December 2018.

Nobody explains the situation better than SPX Transformer Solutions in their Section 232 exclusion request for two grades of domain-refined GOES:

“DR-GOES is one of the most expensive materials used in the manufacture of power transformers, and its cost equates to 10-20% of the overall cost of a transformer…When SPXTS was using U.S.-produced DR-GOES, we were rapidly losing market share on LPTs [Ed. note: large power transformers] and SPXTS was at a decision point to stop producing LPTs in 2016.”

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The company went on to explain that by using low-loss steel from Posco at its Waukesha, Wis., factory, the company began to gain back market share from foreign large power equipment manufacturers.

The need for material with lower core loss rests at the heart of most companies’ exclusion requests. Of course Posco material falls under quota rules (South Korea) as opposed to the 25% tariff and so can come into the U.S. duty-free.

Meanwhile, AK Steel continues to submit objections to the exclusion requests claiming their material does meet core loss requirements. However, given the multiple exclusion requests coming from large power equipment producers challenging that assumption – and willing to pay more for foreign material – suggests those filing objections have a strong argument.

New Section 232 Exclusion Requests

 Meanwhile, Sumitomo has filed an exclusion request for domain-refined electrical steel, also arguing that they need this material because of its “domain-refining properties for all sizes of transformer cores, post anneal.”

Import data continues to support the assertion that large power equipment manufacturers depend upon Japanese-produced domain-refined grain-oriented electrical steel as Japanese imports represent the bulk of all grain-oriented electrical steel imports:

Source: MetalMiner Analysis of ITA Data

 In the meantime, according to a recent TEX Report, Japanese mills are offering prices in the range of $50-100 mt more in 2019 than in 2018, while U.S. producer AK Steel has requested a smaller increase. Meanwhile, Korean GOES imports to the U.S. will increase as the quotas for 2019 open. The producer to watch, however, remains Baosteel in China as the company will focus on higher-quality GOES materials with increased production capacity. Market participants will want to track if that material remains in China or shifts to exports.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) M3 coil price moved up slightly from $2,434/mt to $2,462/mt. The MMI increased two points from 176 to 178.

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 much-publicized joint venture between Tata Steel and Thyssenkrupp will now go under the magnifying glass of the European Commission due to “preliminary competition concerns” around steel for automotive applications, metallic coated steel for packaging and grain-oriented electrical steel (GOES).

According to a press release from the European Commission, the commission has concerns about reduced choice of suppliers and higher prices impacting buying organizations.

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The commission has until March 19, 2019 to make a decision on the planned venture.

The concerns remain valid, as GOES remains a highly concentrated supply market (as well as buying market). Any reduction in the number of European players will add pricing power to producers.

ABB, AK Steel Battle on Exclusion Request

Tracking the exemption requests from Section 232 steel tariffs remains a challenge.

MetalMiner missed the fact that ABB had initially received an exclusion from the Department of Commerce for GOES this summer. That exclusion request was granted and then denied once AK Steel filed an objection.

As we reported last month, ABB challenged AK’s objection. In a series of rebuttals, AK recently filed another comment challenging ABB’s arguments that AK material does not meet its performance and quality requirements around “white edge,” that AK’s material is, “more prone to creating holes than the process employed by Nippon.”

AK took issue with these assertions by filing a comment challenging the fact that no country standard or other customer has a requirement or references “white edge” and that, therefore, the argument appears arbitrary.

However, ABB will likely respond with the regulatory threshold argument required for making exclusion requests: “Specifically, ABB used the BIS standard for exclusion requests regarding product substitution, “a ‘substitute product’ must meet “quality (e.g., … internal company quality controls or standards) … or testing standards, in order for the U.S. produced steel to be used in that business activity in the United States by that end user” (83 Fed. Reg.46026, 46058).

In addition, as MetalMiner reported previously, ABB argued that the actual data from 2016-2018 certified test reports using ASTM A804 test standards did not meet iron loss and core loss requirements.

The parties have until Nov. 12 to submit additional comments.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) M3 coil price held relatively flat moving from $2,421/mt to $2,434/mt.

The GOES Monthly Metals Index (MMI) moved one point from 175 to 176. MetalMiner received additional data after last month’s publication that lowered the GOES M3 MMI from 182 to 175.

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.