Author Archives: Lisa Reisman

Grain-oriented electrical steel (GOES) import levels appear to have peaked in March of this year at 3580 metric tons. Despite a rise in June, import levels appear lower now than during the summer months, but are clearly higher than 2016 levels.

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With a Section 232 investigation still underway, we might expect to see declining import levels until the Department of Commerce submits a report to the Trump administration next month — at which point it remains unclear what will happen with steel imports.

The story behind GOES imports, however, looks quite different from the story behind other steel imports, particularly carbon steel – hot rolled coil, cold rolled coil and coated products.

The GOES trade story has become more complicated, particularly when one considers what types of GOES materials have entered the U.S. market.

Most of the imports did not come from China or Korea (often the targets of trade complaints) — rather, the lion’s share of the volume comes from Japan. See chart below:

Source: US ITC

Yet, Japan produces several products for which no domestic source exists – namely, “heat-proof” products, including those using domain-refined processes used “…in specialty transformers where small size, high efficiency and low noise are at a premium.” Indeed, that description appeared in the U.S. International Trade Commission’s examination of “Grain Oriented Electrical Steel from Germany, Japan and Poland” (see link above).

The domestic producers did not win that trade case. ATI subsequently shut down its GOES operations.

Japan’s JFE and Nippon Steel remain the dominant GOES players for these more technically difficult higher end grades. The Kobe Steel scandal will have little to no impact on GOES markets, since Kobe does not supply the U.S. market with GOES.

Meanwhile, the market will await for additional grain-oriented electrical steel announcements (and potentially supply of H1-B) from Big River Steel, as well as some clarity around GOES with the Section 232 investigation.

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Media coverage of the Section 232 investigations — which could potentially curb imports of steel, stainless steel and aluminum into the U.S. — have spooked importers, consumer groups and some manufacturing industries.

These fears are misplaced, according to Barry Zekelman, executive chairman and chief executive officer of Zekelman Industries. “Steel has been the most abused product on the planet,” he says.

What makes Zekelman’s point of view on trade so fascinating?

The fact that he is not a steel producer! (That, and his ever-colorful examples…our headline above is a case in point.) Take a listen to our conversation:

The Rise of Zekelman Industries

His story sounds like the American dream – a tale of how Zekelman and his brothers were thrust into their father’s fledgling business after their father’s sudden passing. He left college as a freshman to help save the pipe manufacturer.

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The GOES M3 spot price index fell by 4% in October while no action has been taken on the Section 232 steel import investigation.

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China has gone on the offensive, specifically calling foul on the U.S.’s decision not to grant China MES (market economy status). This and the Section 232 investigations have real implications for GOES markets and specifically the sole domestic producer AK Steel.

AK Steel missed its most recent earnings estimates, blaming lower automotive demand and shipments, lower average sales prices during Q3 and rising GOES imports, according to Market Realist.

But AK also cited higher LIFO charges and rising raw material costs.

According to AK Steel CEO Roger Newport in the company’s most recent earnings call Oct. 30, “Yet as the only steel manufacturer Grain Oriented Electrical Steel in United States, we’re battling some of the highest import levels in years. Imports of Grain Oriented Electrical Steel or GOES have increased by more than 260% year-over-year and these imports are coming primarily from South Korea, China and Japan.” He added imports had flooded the market in anticipation of the Section 232 process.

Source: U.S. International Trade Administration

In reality, as reported by MetalMiner previously, the import surge has come largely from Japan which supplies the U.S. with grades of GOES not currently produced by AK Steel. Moreover, for the past two years, it’s hard to see an import surge from either Korea or China.

Meanwhile, from a demand perspective, ABB has shifted its manufacturing footprint by shuttering power-transforming production in St. Louis and investing instead in its South Boston and Crystal Springs locations.

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The October GOES M3 moved up by one point to 194. Meanwhile, as MetalMiner reported last month, imports have increased throughout 2017, largely due to higher Japanese import levels.

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This trend continued in September with a noted overall import increase of nearly 11.5% from August import levels while Japanese import levels increased by nearly 18%, according to the latest International Trade Administration data.

Last month, this publication noted that Japanese imports accounted for 55% of total monthly GOES imports. However, this number jumped in September to nearly 70% of total imports. Japanese mills primarily produce the higher grades of grain oriented electrical steel, including H1-B, as well as laser quality materials.

According to a recent TEX Report, Japanese mills will likely begin negotiations within the next week or two for 1H 2018 volumes. Many producers of these H1-B and laser quality materials have obtained price increases but at the same time, the price spread between conventional grades and high-grades has increased.

Whenever the market creates a spread wider than the historical average, buying (and selling) organizations can take advantage of arbitrage opportunities. Though we tend to see these types of trends more typically in other steel markets, such as hot-rolled coil or cold-rolled coil, market anomalies for GOES create buying opportunities.

Therefore, we could expect the Japanese mills to pay very careful attention to price levels so as not to exacerbate the current price spread between the two types of materials and to prevent buying organizations from considering alternatives.

From a U.S. import perspective, we can see that average prices from Japan have increased to the U.S.

Source: International Trade Administration

When ATI left the GOES market here in the U.S., the industry needed to reconfigure its supply chains for standard or conventional materials. Power equipment manufacturers moved production elsewhere and/or secured new sources of supply offshore.

Clearly, the demand for high-grade materials continues to rise.

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The September GOES MMI increased by a full 12 points, reaching 193. Market observers can note with interest that this rise comes on the back of increasing GOES imports, as noted by Roger Newport, CEO of AK Steel, on a recent earnings call.

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Unlike other steel markets, when sudden large volumes of imports begin to arrive typically a big spread exists (the price between the domestic and international markets).

In this case, something else appears to explain the volume of imports into the U.S.

When we examine the total volume of grain-oriented electrical steel (GOES) imports into the U.S., indeed, the assertion of increased import volumes appears correct:

But when we look at what is driving those imports, we come to a different conclusion – that Japanese GOES imports have led the increase (and in fact account for 55% of GOES imports):

One could argue these imports hardly appear “dumped” the average price for Japanese material at $2627/metric ton appears just under the MetalMiner domestic M3 spot price. In fact, by our own analysis of import prices, the average import price of Japanese material for the last six months has only diverged from our M3 spot index by no more than $68/mt, and in one month was more expensive by $64/mt!

It’s hard to see how GOES has been “dumped” into the U.S. market.

Moreover, the industry knows the Japanese produce the more technically advanced grades that allow manufacturing organizations to produce to higher efficiency standards.

Meanwhile, China’s Baoshan Iron & Steel increased GOES domestic prices seven times since the beginning of the year, according to a recent TEX Report. The same report indicates Japanese mills have held prices fairly steady.

The Section 232 investigation remains ongoing, with a report expected by mid- to late-January.

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Global trade developments with a dose of healthy demand appear to be setting the stage for grain-oriented electrical steel (GOES) price movements for H2.

Although the big story in the U.S. involves Section 232 developments, GOES prices globally are increasing because of several measures in both China and Europe.

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According to a recent TEX Report, Japanese mills received a $100/metric ton increase for GOES shipments to India and Southeast Asia. And, because of an anti-dumping order in China, Baoshan has raised its prices six times this year.

Curiously, the European Union implemented a system by which a “price floor” has been established for GOES. This price, according to TEX Report, is higher than the international GOES price. Europe can expect to see higher-priced imports as a result.

Meanwhile, the U.S. Department of Commerce has not released any recommendations on the Section 232 investigation. Although GOES producer AK Steel — along with other steel producers —  has lobbied hard for some sort of import curb, the fact that no recommendations have been made suggests the DOC acknowledges that the Section 232 investigation contains a number of complexities across a broad range of stakeholders that have all weighed in on the findings.

The Section 232 investigation, to some extent, has slowed down annual negotiating cycles for manufacturing organizations, as several recently told MetalMiner at our 2018 Budgeting and Forecasting workshop.

Producers had likely hoped for the release of the findings to take their price cues. MetalMiner believes that without the release of the report, producers will start considering 2018 contracts in September, similar to normal annual contract cycles.

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The M3 GOES MMI — the sub-index tracking grain-oriented electrical steel — fell two points this past month from 189 to 187.

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The small decline in the U.S. runs counter to market price trends for Japanese GOES material. According to a recent TEX Report, Japanese producers have won price increases because of supply shortages. Moreover, Korea’s Posco scored a $300/metric ton price increase to supply India.

Meanwhile, MetalMiner sources say Chinese producers appear fickle, quickly raising prices only to lower them to accept new orders and fill capacity.

The 800-pound gorilla in the room, however, involves the Section 232 investigations.

Many are speculating that the delay will bring about a more modest set of recommendations from Department of Commerce Secretary Wilbur Ross, as the much-awaited report rumored to have been released prior to the July 4 holiday and delayed to right after the G20 summit, has still yet to be released.

MetalMiner speculated about potential outcomes in a story published nearly a month ago (and still believes that to be the most likely outcome). Meanwhile, Australia appears confident that it will be exempted from any such action. Some have suggested that Canada might also feel secure in receiving an exemption, but MetalMiner has not been able to substantiate that claim. Moreover, because Canada is such a significant supplier to the U.S. for steel products, it’s hard to conceive of how that country would receive a full exemption from whatever is recommended under Section 232.

Of course, Canada remains a critical part of the GOES supply chain, as Canada produces wound and stacked cores and exports them to the U.S.

Meanwhile, Back at the BRS Ranch…

In addition to the Section 232 investigation, David Stickler, CEO of Big River Steel (BRS), recently indicated at a steel conference that BRS would move forward with an additional study and due diligence activities on its Phase II expansion to include non-oriented electrical steel (NOES) capability.

Industry participants suggest that this could also include Phase III funding that includes GOES capability.

Last month, MetalMiner reported on growth projections for electric vehicles (which requires NOES materials to get the power from the battery to the motor) and the numbers suggest very large growth within the automotive sector. This will likely form the basis of due diligence activities and indirectly impacts GOES production, as NOES is often produced on the same lines.

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What this means for industrial buyers

It’s hard to pay close attention to the month-to-month movements of what is essentially a M3 spot market index. The Section 232 investigation outcome remains potentially the single biggest price driver for the U.S. market.

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Steel and stainless steel buying organizations have expressed concern to MetalMiner about the potential outcome of the current Section 232 steel investigation led U.S. Secretary of Commerce Wilbur Ross.

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According to a recent Reuters article, Ross, when discussing the Section 232 steel investigation told a Senate Appropriations Subcommittee last week that, “there is a genuine national security issue,” suggesting his agency would make recommendations that would potentially curb steel imports.

He went on to suggest several potential policy recommendations, including: “Imposing tariffs above the current, country-specific anti-dumping and anti-dumping duties on steel products; imposing quotas limiting the volume of steel imports; and a hybrid ‘tariff-rate quota’ option that would include quotas on specific products with new tariffs for imports above those levels,” and intimated that this last option would help mitigate price risk for steel consumers. Ross made several additional comments to allay consumers’ concerns regarding price increases.

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U.S. domestic prices of grain-oriented electrical steel (GOES) fell this past month, continuing the roller coaster ride of price increases and decreases in the GOES M3 index since the start of this year.

GOES prices do not tend to follow general steel price trends, nor does simple fundamental (supply and demand) analysis help explain price trends.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Globally, for example, GOES prices are on the rise, on the back of several developments.

Demand for electric cars

An increased demand for electric cars that use high-quality non-oriented electrical steel (NOES), is one such development. MetalMiner has reviewed market growth data supplied by an automotive manufacturer indicating that demand for electric vehicles is anticipated to take about 8% market share away from internal combustion engine (ICE) automobiles by 2020, with battery electric vehicles (BEV) taking up the largest share of electric vehicle (EV) growth.

NOES is required to get the power from the battery to the motor. How does this impact GOES prices? High-quality NOES often needs to run on GOES product lines, thereby limiting GOES capacity.

In theory, this should cause prices to rise.

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Last month we reported that in March, U.S. domestic steel prices generally rose while the GOES M3 price fell. This month, we can safely report the exact opposite price change. U.S. domestic steel prices fell while GOES prices rose in April.

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In our April update, MetalMiner indicated that GOES prices might find a price floor on the back of a large 20,000/mt tender from Bharat Heavy Electricals. That indeed appears to have happened. Moreover, according to a recent TEX Report, GOES prices have continued to climb in China as Baoshan Iron & Steel needs to service the domestic market due to anti-dumping cases preventing Japanese and Korean imports to that market.

The TEX Report also suggests that global inventories remain low and that many countries have come into the market all at the same time, requiring material. This could lead to higher prices, particularly from the Japanese mills for contracts awarded during the second half of the year.

The Gorilla in the Room

The real challenge for domestic GOES prices, however, rests on the results of the Section 232 steel product investigation launched by the Trump administration in late April. The results will likely not come much before January 22, 2018, assuming the Secretary of Commerce takes the allowable 270 days to present findings to the President. At its core, the investigation seeks to address the issue of

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