Author Archives: Lisa Reisman

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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Exact GOES Coil Price This Month

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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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Exact GOES Coil Price This Month

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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.

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

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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Exact GOES Coil Price This Month

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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.

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

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.

Exact GOES Coil Price This Month

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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.

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

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.

Two-Month Trial: Metal Buying Outlook

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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International trade hasn’t been this contentious since before the Great Depression, and it is causing free traders much concern. We’ve seen a number of trade cases affect some U.S. imports such that the U.S. steel industry effectively implemented a full ground stop on many steel products (though that ground stop has been short-lived). Some political appointments have caused a backlash amongst some free-trade Republicans, importers, traders and manufacturers.

FREE REPORT: How Circumvention Impacts Both Downstream, Value-Added Manufacturing

This administration’s stance on trade has helped galvanize both the case for and against trade. These arguments are centered on several themes related to the notion that China’s loss is U.S. value-added manufacturers’ gain — if China chooses to “dump” its products at a loss, then shouldn’t value-added manufacturers take the opportunity to purchase [steel and/or other commodities] to increase their overall cost competitiveness on finished goods?

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This is the final of a three-part series on MetalMiner Benchmark. Here’s part one and part two if you missed them.

We recently launched MetalMiner Benchmark. Source: MetalMiner.

One question we often field from readers is this one: “how are other companies buying their X and how well are we buying X?” We have previously written that many buying organizations fall into one of several different “buy” scenarios that include the following:

  1. The pure spot buyer (e.g. otherwise known as 3 bids in a box): Here, the buying organization goes out to market with a specific requirement, obtains three bids and typically places the award with the most competitive supplier who can meet delivery and quality requirements.
  2. The contract buyer: Prefers nearly the opposite type arrangement. He or she likes to “lock in” all or close to all known requirements or use some formula based on 80% of last year’s demand. The contract buyer often uses a price contracting mechanism known as an index whereby the price adjusts quarterly or monthly to the index depending on the agreed-upon arrangement.
  3. The hybrid buyer: This buyer is more strategic in that he/she buys both on the spot market and also contracts for forward buys or hedges when prices warrant that action.

Pros and cons exist for each scenario. Often times, the contract buyer in scenario two actually looks more like the spot buyer in scenario one because when a buying organization uses an index like CRU Group‘s, they do, in fact, pay the market price. They don’t actually pay less than the market or avoid a cost run-up if prices rise. In that sense, the scenario two buyer is actually a spot buyer — ultimately paying the market price.

We’d argue there are tools today that allow the buying organization to take their metals purchasing to the next level. Innovative practices such as benchmarking can actually allow the buying organization to reduce its average or budgeted purchase price. Let’s see how.

There are a number of ways to this. We have identified a few below:

  1. By benchmarking your company’s current monthly metal spend, and by doing so regularly, buying organizations can walk into a supplier negotiation armed with current market price data and knowledge of how well the company buys vis-à-vis the market. Access to superior metal price intelligence gives the buying organization a leg up in negotiations and the ability to lower costs.
  2. By pairing the benchmark report with forecasting, buying organizations can better time contract purchases both to avoid significant price increases as well as to “float” when prices are dropping. In this way, the buying organization can apply a more strategic hybrid approach to metals purchasing thereby lowering average costs.
  3. Think of benchmarking as laser surgery. Buying organizations now have the means of pinpointing specific SKU-level opportunity areas while leaving other areas untouched.
  4. Stop wasting time on metal sourcing projects that have little to no ROI. Conversely, identify high-ROI metal sourcing projects. Educate your executive team with where and how the procurement organization plans on creating value within some of the largest metals purchase areas.
  5. Conduct alternative supplier identification on the fly by seeing alternative suppliers within your geography for the form/alloy/grade/size you buy. By conducting these types of analyses quickly and efficiently the long cycle time of implementing savings can be streamlined and shortened.

Try Benchmarking for free with self-service!

Bonus benefit: improve your ISO certification scores by using benchmarking, which enables a fact-based approach to decision-making, a key requirement of certification.

The most innovative metal buying organizations will become the early adopters of this type of benchmarking capability. Just as Progressive Insurance and Kelley Blue Book created market access to greater pricing visibility, metal price transparency appears within reach. This innovation should significantly improve metal buying strategies.

This is the second of a three-part series on MetalMiner Benchmark. Here’s part one if you missed it.

If data is the new natural resource in business, then when examining the landscape of third-party metal price tools, indexes and services, it’s safe to say that most of them fall into one of three categories:

  1. They report out the exchange-traded metal (meaning the metal that is traded on a formal exchange, typically a raw material form of the metal)
  2. Some report alloying elements and minor metals — important for mills and producers but less relevant to OEMs and most metal buying organizations
  3. They report out only a parameter or two such as alloy and form, e.g. cold-rolled coil (and typically a geography) but don’t get more specific than that

Our own MetalMiner IndX(SM), which we are no longer actively marketing, reports out most of the above and in some cases, by multiple geographies. Helpful? Sure, but limited in a number of key respects.

Limitations of Current Metal Price Indexes

Based on our own analysis and analyses conducted by our readers and shared with us, the three primary limitations of current metal price indexes (including our own) are as follows:

  1. They aren’t correlated enough with the metal prices buying organizations actually pay. The London Metal Exchange three-month aluminum price plus the Midwest premium certainly goes a long way in helping buying organizations understand the general aluminum price trend, but that still leaves some portion of the price a company actually pays out of the equation.

For example, the 3003 H14 .020 x 48” x 120” sheet that a company actually buys from a service center includes more than what current indexes supply:

  • LME three-month aluminum price + MW premium + Conversion Premium + margin + delivery to the customer.

CRU Group publishes a weekly CRC, HRC, HDG and Plate price for several geographies in the midwest but that CRC price is still not the same price as the price for 100,000 pounds of 1011 12 gauge x 48” coil.

  1. In some cases, other metal price indexes have the form, alloy and grade-level data (see stainless prices from MetalBulletin). American Metal Market also publishes form/alloy/grade data but it may not include specific sizes, quantity breaks or price differences based on those parameters. In addition, some of these may only be updated monthly.
  1. Current price indexes are all one-sided — They go from the publication out to the reader/user. There is no two-way method of giving your data and getting something back that allows you to compare your purchase price against others in your industry.

Benchmarking is always free with self-service!

Why Form/Alloy/Grade/Size Matter

By providing a means to identify the market price at the granular level of form/alloy/grade/size, buying organizations can now effectively compare the actual industrial prices paid against peers as well as the market as a whole. This capability also allows buying organizations to identify alternative suppliers, pinpoint specific SKUs and areas of opportunity, and strengthen existing supplier relationships.

It’s clear that, indeed, “data is the “new” natural resource in business. In our next post we’ll cover how buying organizations can use these types of resources to lower their average cost.

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