grain oriented electrical steel

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.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

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.”

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

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.

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.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

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.

For more efficient carbon steel buying strategies, take a free trial of MetalMiner’s Monthly Outlook!

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.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

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

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

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.

Global steel prices tend to find a floor based on the price of Chinese steel. If Chinese prices fall, domestic U.S. prices also tend to fall. However, grain-oriented electrical steel continues to beat to its own drum, often not aligned with underlying steel prices.

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

March is no exception.

Although U.S. domestic steel prices continued to rise in March, the GOES M3 price fell and fell rather significantly dropping by nearly 7%.

GOES MMI

Meanwhile, according to a couple of recent TEX Reports, GOES prices from Baosteel increased by $38/metric ton in April after increases of $168/mt from January through March. Baosteel acts as the price leader and according to a recent report, and will likely stand pat until or unless others also increase their prices. Those “others” may have a near-term opportunity to do so as a large tender from Bharat Heavy Electricals for 20,000 mt will bring in the global GOES producer community. As China tends to set the “market floor” for global steel prices, the TEX Report suggests that this tender will serve as the global price floor for GOES for the balance of 2017.

Supporting the rising price theory, TEX Report also suggests that prices have risen by $200-300 per mt in the Middle East and India.

Ironically, prices for steel rebar on the Shanghai Futures Exchange have declined by 5% according to a recent MetalMiner story on the back of declining coking coal (4%) and declining coke prices (5%), as well as falling iron ore futures. Some, including MetalMiner, believe the price declines are due to speculators unwinding bullish bets.

Chinese HRC

Source: MetalMiner Forecasting

Regardless, Chinese prices for hot-rolled coil are falling and though GOES prices often diverge from underlying steel market trends, upward price movements may be elusive.

 

U.S. M3 grain-oriented electrical steel prices dropped slightly with the M3 index moving from 200 to 197.

Two-Month Trial: Metal Buying Outlook

Though U.S. prices dipped slightly, China’s Baosteel announced a price hike for GOES close to $40 per metric ton, according to a recent TEX Report. Although the Chinese have led recent GOES and other steel product price hikes, others have not necessarily followed. Nevertheless, Chinese steel prices set the floor for global steel prices.

GOES MMI

Now that the Trump administration has begun to settle in, market observers have paid close attention to trade actions within the metals industry, particularly the cold-rolled coil circumvention case and most recently a case filed by the Aluminum Association against China involving aluminum foil. Both the domestic steel and aluminum industries have pursued trade cases to address overcapacity concerns.

GOES Prices and NAFTA

GOES markets follow some of these same patterns. Back in 2013, GOES from China accounted for about 10% of total U.S. GOES imports (by tonnage). Clearly, the trade cases filed by the domestic producers at the time limited Chinese imports, but that trade case sought to stop other countries’ imports as much as China’s.

Herein lies a big difference between the GOES case and the aluminum case as well as the prior flat-rolled product steel cases. The GOES trade case did not result in any finding of injury, so no anti-dumping and countervailing duties were assessed. Instead, domestic power equipment manufacturers shifted their global supply chains to source GOES globally and purchase transformer parts and wound cores from NAFTA countries.

Some have speculated that two years ago, the addition of two new harmonized tariff codes for both transformer parts (8504.90.9546) and wound cores (8504.90.9542) would set the stage for future trade cases brought by the lone domestic GOES producer. We think this looks like a “stretch” and, legally, we’re not even sure there is a case to be had as AK Steel currently does not manufacture transformer parts or wound cores.

Import volumes for wound cores have modestly increased, but imports for transformer parts have actually declined:

GOES imports from 2015 to today

GOES imports from 2015 to today. Source: Lisa Reisman/MetalMiner.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: Adding GOES Price Benchmarking Soon!

 

The GOES M3 MMI took another jump this past month moving from 192 to 200 for a 4+% increase. Last month the index made a 5% gain.

Last month, MetalMiner examined the Trump administration’s stance on trade policy and likely impact on GOES markets (and concluded that GOES prices would not see too much of an impact since most of the imported GOES material comes from Japan, Russia and the U.K.) In other words, even in a trade war with China, we don’t expect that to drive GOES price momentum.

Click Here for Current Metal Prices

However, and as one of our readers pointed out, our story failed to address “Buy America” requirements which, indeed, could impact GOES markets.

We know President Trump implemented Buy America requirements for the Keystone XL and Dakota Access pipelines including all new pipelines and retrofits (even slab imports are disqualified for domestic producers with only rolling operations here in the U.S.) Could Trump implement Buy America requirements for transformers? The answer to that question: absolutely! It’s clear that Trump will act aggressively to promote Buy America requirements. These requirements will serve as a bullish indicator for GOES prices.

In the aftermath of the GOES domestic anti-dumping case, many large equipment manufacturers moved production of stacked and wound cores as well as laminations to suppliers in Mexico and Canada in anticipation of significant duties being placed on GOES imports here in the U.S. Those duties did not materialize. Nevertheless, production moved to NAFTA countries anyway.

Which brings us to NAFTA. President Trump has promised to renegotiate NAFTA. But in truth, NAFTA has not been bad for the domestic steel industry. It remains unclear what specific changes the President will attempt to renegotiate. Furthermore, AK Steel could find itself in a bit of a pickle. On the one hand, from an overall perspective, AK Steel has probably benefited from NAFTA as the agreement currently stands, though its GOES business, in particular, may have suffered as AK customers moved operations to Canada and Mexico. As the sole remaining domestic GOES producer, AK Steel may need to walk a fine line between what it lobbies for in terms of Buy America and what it has gained with NAFTA.

Two-Month Trial: Metal Buying Outlook

Meanwhile, the industry should pay close attention to Big River Steel which reported record first-month production for a flat-rolled mini mill. BRS has publicly stated that they will add GOES capacity at a later stage. Aperam South America has started a GOES line out of Brazil. Imports from South America could increase just as BRS is starting its GOES line.

Meanwhile, what’s driving GOES price momentum right now?

According to a recent TEX report, orders that are typically placed during the summer months did not get placed which created a surplus. Since January, buying organizations have come back into the market including: Chinese, Korean and U.S. customers. In addition, a large tender for the Middle East will soak up some extra capacity which has caused market entrants to secure material before that tender is released. This has likely caused some price momentum as Baosteel raised prices for February shipments.

U.S. import levels have also increased during January supporting the notion that demand has increased.

 

Average grain-oriented electrical steel surcharges fell for the third year in a row. 2016 average surcharges took the biggest hit because Allegheny Technologies stopped production of GOES. AK Steel did not implement a surcharge until July 2016.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Our own GOES M3 MMI showed only small price movements from month to month. The index hit a low of 181 back in July and today shows a modest recovery to 192, a 5% gain.

GOES follows its own fundamentals (e.g. supply and demand) and does not always follow the price arc of other more common forms of steel such as cold-rolled coil or hot-rolled coil. In fact, some of the wider trade dynamics for those forms of steel had little to no impact on GOES.

Which brings us to a larger issue. Will President-elect Trump, who is arguably pro-steel and who has gone on record against China’s trade practices, implement any policies that will likely impact GOES markets?

To begin, the nature of trade between the two countries, the U.S. and China, appears more complicated than what can be seen by the naked eye. Raw material/commodity-like supply chains lack the complexities of supply chains found in industries such as electronics. Blanket tariffs are easy to issue and calculate for commodities that move from point A to point B. But electronics industry supply chains involve components, parts, sub-assemblies, final assembly, etc. across multiple countries and locations. A blanket tariff on electronics will harm China much more than other countries as the tariff would apply to the “final point of assembly.” This could create all sorts of electronics shortages and problems here in the U.S.

Why Are We Discussing Electronics Supply Chains?

Because it would be easier to get tougher on China for commodities such as steel. And though China has curbed excess capacity in recent years, we could see a scenario in which tough trade policies such as a tariffs could significantly limit Chinese imports, which currently make up about 10% of domestic steel demand according to a recent analysis by Stratfor.

China will retaliate but a scenario exists that China could account for far less steel imports into the U.S. than it currently does (China has cut excess capacity already). In terms of grain oriented electrical steel, however, China does not represent the bulk of GOES imports into the U.S., in fact, Japan, Russia and the U.K. are far bigger GOES exporters to the U.S.

Two-Month Trial: Metal Buying Outlook

Therefore, any President Trump trade policy that goes into effect (no pun intended) will likely have a bigger impact on the broader steel markets and a far less significant impact on the U.S. GOES market.

Next month, we will examine the potential impact of NAFTA changes on GOES markets.

Grain-Oriented Electrical Steel M3 retook last month’s loss rising by more than 3%.

 

China took action yesterday and filed a complaint with the World Trade Organization against the U.S. and Europe for not automatically granting China Market Economy Status.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

In fact, Commerce Secretary Penny Pritzker went on record specifically stating that the U.S. would not be granting China such status.

The granting of market economy status, of course, would make it harder for domestic companies to prove dumping against China. It all comes down to how price comparison data is calculated.

GOES_Chart_December_2016_FNL

According to Tim Brightbill, an attorney at Wiley Rein LLP, “essentially the only thing that would force the Commerce Department to formally confront the China/MES question is a trade lawsuit filed by China, or implicating China, in which the latter would be explicitly able to make that type of request.”

Alhough Europe appeared to be teetering with its decision not to provide MES, Japan also sided with the U.S. and denied China MES.

Why This Matters to GOES Markets

GOES has been the subject of international trade dumping cases for the past several years. The real challenge to MES will be the first trade case filed by any domestic industry against China. GOES will unlikely serve as that test case.

For readers interested in how China sees this issue (and uses the word protectionism to make its case), this post provides a good example.

We remind readers that MetalMiner is a banned publication within China because of all of our subversive anti-China rhetoric.

On that note, GOES industry observers should take note of a steel mega-merger within China. China’s Baoshan Iron & Steel (Baosteel) and Wuhan Iron and Steel Corp. (WISCO) have formed China Baowu Steel Group with a whopping 60 million metric tons of capacity (that is more than half of the entire U.S. steel-making capacity).

Two-Month Trial: Metal Buying Outlook

The combined firm has publicly stated it would cut 16.6 million mt of capacity by 2018 to address the country’s over capacity concerns.

Baosteel is also major producer of GOES within China.

Grain-Oriented Electrical Steel M3 prices lost nearly all of last month’s gains dropping by nearly 3%.

 

Grain-oriented electrical steel M3 prices rose by about 3% this past month.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Coincidentally, Allegheny Technologies, Inc. announced that it would now permanently idle its Midland, Pa. and Bagdad in Gilpin, Pa. facilities, thus exiting some commodity stainless steel markets as well as the GOES market entirely.

The closures — combined with new labor agreements, rightsizing plans and defined benefit retirement plans closed off to new employees — will help ATI improve its cost structure. ATI’s flat-rolled products division is expected to return to profitability in 2017 according to the most recent earnings announcement.

GOES_Chart_November_2016_FNL

And though these ATI plants have been idled since the Spring of this year, it now appears certain that the U.S. will have only one remaining GOES producer: AK Steel.

Similar cost reduction themes played out at the most recent AK Steel earnings call on October 25, “The improved product mix, higher average selling price per ton, improved carbon steel market prices, focus on cost reductions and lower raw material costs contributed to the 31% increase in adjusted EBITDA.”

In terms of the improved carbon steel market, we noted that non-ferrous metal prices continued to rise throughout October, confirming a bull market. Steel price declines have started to slow and, in fact, cold-rolled coil prices notched up $1/st this week. Though this appears insignificant, it demonstrates that steel prices may have found a price floor. In addition, the gap between domestic and international CRC prices has narrowed.

Two-Month Trial: Metal Buying Outlook

Although GOES prices tend to move somewhat independently from other non-ferrous and ferrous metals, the fact that non-ferrous metals have moved in a bullish direction and steel prices also appear to be finding a floor means that, in the near term, we would not expect to see any dramatic GOES M3 price declines.