By Lisa Reisman
GOES Monthly Metals Index (MMI) spot prices took a big drop, while large power equipment manufacturers went head to head with the sole U.S. producer of grain-oriented electrical steel (GOES), AK Steel (NYSE:AKS).
GOES appears more challenging under Section 232 because both producers and manufacturers make the same national security argument. The sole producer of GOES wants tariff protections pitting supplier against customer, yet the power equipment manufacturers make an equally compelling case.
At issue is that the power equipment manufacturers want an exclusion for GOES not currently produced in the U.S., and the sole domestic producer has argued its products provide an "equal" substitute.
Last month, MetalMiner covered the specific Section 232 exemption requests and responses from ABB Ltd. (NYSE:ABB) and Cooper Power. Posco (NYSE:PKX) has also made a notable exclusion request, and more recently, SPX Transformer Solutions.
In its surrebuttal (a rebuttal to a rebuttal), ABB argued that AK Steel does not produce a substitute for Nippon Steel's (NSSMY) product. Specifically, ABB used the Bureau of Industry and Security (BIS) standard for exclusion requests regarding product substitution, which notes "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).
Whereas AK Steel focused its argument against ABB on the issue of core loss data - suggesting its products meet the equivalent performance standards of Nippon Steel's product - 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. ABB also submitted confidential data not available for public review.
ABB also claims AK Steel does not meet internal quality controls and standards. This point appears significant, as ABB states, "ABB's transformers are based on proprietary designs that incorporate quality requirements, including burr height, 'white edge' and holes, which have significant impacts on the performance of the transformers." The company goes on to claim that AK's manufacturing process is "more prone to creating holes than the process employed by Nippon," and "white edge is an ABB internal measurement of coating adhesions to GOES products," of which the coatings are important to prevent transformer failures.
More important, ABB claims that 11 of 12 suppliers, with AK as the lone exception, agree to ABB's quality requirements on these specific parameters.
The argument is analogous to stating that a steak is a steak, whether you are at Peter Luger or Ponderosa. Sorry, folks, but I'm pretty sure that a Peter Luger filet mignon is going to be tastier than Ponderosa's version of the same cut (with all due respect to Ponderosa).
Meanwhile, Eaton Corp. (NYSE:ETN) (Cooper Power), although notably with much less detail, made a similar argument: "The AK Laser scribed material if post annealed, loses ALL of the benefits of the laser scribing process, which is to further align the grain structure to a more efficient configuration. The Japanese product that is Chemically or Mechanically etched retains these important properties even after post annealing. The Japanese material is designated as Permanent Domain Refined Electrical Steel."
SPX and Posco
Meanwhile, SPX imports the following from Posco: "0.23mm thick DR-GOES of Grade 23PHD080 with guaranteed maximum losses of 0.96 W/Kg @ 1.7 kilogauss and 60HZ." SPX has requested the exclusion for lack of availability of a similar substitute product.
Posco, meanwhile, like ABB, has outlined a series of arguments supporting its exclusion request.
Import Data Supports OEM Claims
MetalMiner has long reported that the lion's share of GOES imports come from Japan (versus China, the primary target of the Section 232 steel and aluminum tariffs), suggesting that AK's material may indeed not be a like-for-like substitute product.
A similar pricing-per-ton analysis would also show that Japanese imports are not "dumped" into the U.S:
Exact GOES Coil Price This Month
The U.S. grain-oriented electrical steel (GOES) coil price fell for the third month in a row, down from $2,763/mt to $2,446/mt. The MMI fell 18 points to 182.