US electrical steel demand to outpace supply: Kloeckner CEO

The demand for electrical steel in the US will outpace the supply of the material, which is currently facing a shortage due to a lack of domestic producers of the value-added steel, the top executive of Kloeckner Metals Corporation (KMC) told Fastmarkets

“There are going to be some constraints on materials, specifically electrical steels. Non-grain-oriented electrical steels (NGOES) are needed in the batteries of electric vehicles (EVs), and in North America we have a shortage of that product being produced,” John Ganem, member of the management board of German metals distributor Klöckner & Co and chief executive officer of the firm’s US subsidiary, Kloeckner Metals Corporation, said.

“The demand for that type of steel is going to far outpace the supply of that material,” he added.

The supply constraint is due to insufficient domestic production of electrical steels to meet future demand, according to Ganem. He said:

There are only a few [electrical steel] producers around the world. Some of them can’t even ship to the United States. We don’t have enough domestic production of these products to meet the future demand.

In North America, Cleveland-Cliffs is the only supplier of automotive-quality electrical steels. The company invested $30 million in its Zanesville, Ohio plant to contribute 70,000 short tons to the steelmaker’s non-oriented electrical steels (NOES) capacity by the end of 2023. Each EV motor requires around 150 lbs of NOES, according to Cliffs.

Another major steelmaker, US Steel, is set to be the second US supplier of NOES. The company’s upcoming NOES line, branded “InduX,” at Big River Steel in Osceola, Arkansas, is scheduled to achieve full production of 200,000 short tons per year in 2024.

Rise in EV demand means the same for electrical steel

The rise in demand for electrical steel is driven by an uptick in demand for EVs, Ganem said.

“We clearly see a significant shift in automotive production and in consumer demand towards EVs, in the electrification of transportation in general. The amount of investment happening in EVs is massive and there’s no question that there’s going to be exponential growth in the demand for EVs and in the production of EVs for the foreseeable future,” he said.

While Gahem expressed that it is difficult to forecast the exact rate of the increase in demand, he noted it will be a “long-term shift.”

“We’ve seen positive reactions and significant interest not just from automakers, it’s across the board, from all OEMs [original equipment manufacturers]. Anybody whose product requires a motor requires electrical steel,” Ganem said.

Since electrical steels are going to be “highly valued” in a tight supply environment, the material will trade at a premium and consumers would have to pay it if they wanted access to it, according to the CEO.

The size of the premium and how long it will remain in place depends on “the development of demand growth and how quickly domestic industries can add additional capacities,” he added.

To address some of the supply constraints of electrical steel, the domestic steel industry should make investments in the production of material, according to him.

“There needs to be further investment in these products…to produce [them] in North America. This is a product line that’s going to be highly valued, where supply is somewhat constrained compared to demand. It’s going to trade at a premium and there’s a significant opportunity for growth,” Ganem said.

KMC acquires NMM in ‘higher value-added play’

Klöckner & Co acquired National Material of Mexico (NMM), a service center and materials supplier serving automotive end markets in North America, on August 1, a move Ganem described as a “higher value-added play.”

“They [NMM] are a big participant in the automotive sector, which requires a high level of technical expertise and quality. [NMM has] more of a service center model, as opposed to a purely distribution [model] where you’re not adding much value, you’re just buying and selling, as opposed to servicing in managing complex supply chains,” Ganem told Fastmarkets.

The acquisition allows KMC to enter the electrical steel market, a key component of the engines in EVs and transformers, according to the company said.

“In addition to that service center component, specific to the automotive sector, there’s a lot of high value-added manufacturing associated with this, specific to the electrical steel business model that NMM has in which they’re actually manufacturing cores that are used in transformers,” Ganem said.

Another factor that led to the acquisition was NMM’s geographical presence in North America, the CEO said.

“The great thing about National Materials is that their business is in Mexico, the US and Canada, so they have a full North American solution that we can be part of. It’s a platform for growth where we make further investments and, based on how the market develops and how the mills develop, we’ll position ourselves accordingly as one of the leaders in that product line and help build those supply chains for OEMs, which are going to have increasing demand for those products,” Ganem said.

Collectively, KMC and NMM will have a presence in the US and Mexico spanning 56 sites. Ganem added:

In Mexico, we’ve seen just tremendous investments…a lot of demand coming from the EV side. Now being a major supplier in the automotive sector, we’re able to contribute and be a key supply chain partner to help drive the electrification of the North American marketplace.

Rise of reshoring to boost North American manufacturing

The insufficient number of domestic producers of electrical steel has diverted the production of the material to Mexico, which has been a “big beneficiary in the electrical steel marketplace,” Ganem said.

Ganem also highlighted the rise of reshoring in the US and Mexico, which will boost manufacturing in North America.

“There’s reshoring, we see a lot of this, where production is being shifted from Asia, typically back to Mexico and to the US, depending on the type of product or manufacturing. We’re seeing a lot of European companies looking to relocate to Mexico because they see the opportunity,” Ganem said.

He added: “Every one of our larger OEM customers have a strategy to be in Mexico, to shift production from other parts of the world back to North America. It’s happening every single day. There’s no question that manufacturing in North America is going to grow because of it.”

“To be a key supplier, you’re going to have to have production capabilities closer to the end-use markets,” Ganem said.

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