3A

- i APPENDIX 3A. CORE STEEL MARKET AN ALYSIS

TABLE OF CONTENTS

3A.1 INTRODUCTION

................................ ................................ ................................ ... 2

3A.1.1 U.S. Steel Market History

................................ ................................ ........................ 2

3A.1.2 U.S. Electrical Steel Market Key Players

................................ ................................ 3

3A.1.3 International Electrical Steel Market Key Players

................................ ................... 3

3A.1.4 U.S. Import/Export Data

................................ ................................ .......................... 4

3A.2 CURRENT GLOBAL ELECT RICAL STEEL MARKET

................................ ..... 5

3A.1.5 Asian Steel Consumption

................................ ................................ ......................... 5

3A.1.6 Core Steel Manufacturer Input Prices

................................ ................................ ...... 6

3A.1.7 Value of the U.S. Dollar

................................ ................................ .......................... 8

3A.1.8 Global Economic Recession

................................ ................................ .................... 9

3A.3 U.S. ELECTRICAL STEE L PRICING

................................ ................................ ... 9

3A.1.9 U.S. Electrical Steel Producers

................................ ................................ ................ 9

AK Steel

................................ ................................ ................................ ................... 9

3A.1.10 Steel Pricing

................................ ................................ ............................... 10

3A.1.11 U. S. Electrical Steel Pricing

................................ ................................ ....... 10

3A.1.12 Amorphous Core Material

................................ ................................ ......... 12

3A.1.13 Material Price Sensitivity Analysis

................................ ............................ 13

3A.4 ELECTRICAL STEEL MAN UFACTURER PROFILES

................................ ..... 13

3A.1.14 AK Steel

................................ ................................ ................................ ..... 13

3A.1.15 Allegheny Ludlum

................................ ................................ ..................... 13

3A.1.16 Nippon Steel Corporation

................................ ................................ .......... 13

3A.1.17 JFE Steel Corporation

................................ ................................ ................ 14

3A.1.18 Novolipetsk Metallurgical Plant

................................ ................................ 14

3A.1.19 Tata Steel (Cogent Power Ltd.)

................................ ................................ . 14

3A.1.20 ThyssenKrupp Steel

................................ ................................ ................... 14

3A.1.21 China Steel Corporation

................................ ................................ ............. 15

3A.1.22 Pohang Iron and Steel (POSCO)

................................ ................................ 15

3A.1.23 Shanghai Baosteel Group Corporation

................................ ...................... 15

3A.1.24 Wuhan Iron and Steel Company

................................ ................................ 15

3A.1.25 ArcelorMittal

................................ ................................ .............................. 15

3A.1.26 Stalprodukt S.A.

................................ ................................ ......................... 16

3A.1.27 Angang Steel

................................ ................................ .............................. 16

LIST OF TABLES

Table 3.1 Grain Oriented Electrical Steel Key Players

................................ ...................... 4 Table 3.2 Alloy Surcharge for Electrical Stee ls (US$/ton)

................................ ................ 8 Table 3.3 Selected International Currency Rates per U.S. Dollar

................................ ..... 83A

- ii LIST OF FIGURES

Figure 3.1 Average Annual Prices for Grain Oriented Steels in the U.S. ($/lb)

................ 7 Figure 3.2 Average Annual Prices for Grain

- Oriented Steels in the US (2010$/lb)

....... 11 Figure 3.3 Average Annual Prices for Specialty Steels in the US (2010$/lb, note: SA1 is finished core)

................................ ................................ ................................ .................... 123A

- 1 APPENDIX 3A. CORE STEEL MARKET AN ALYSIS

Core steel is one of the major cost drivers of a distribution transformer and is fundamentally linked to the efficiency of the finished transformer. When looking at the impact of energy conservation standards on the distribution transformer industry, it i s therefore important to understand the core steel market.

Starting in late 2003, transformer manufacturers began to experience increases in the price of core steel. While prices vary across the industry (i.e., generally based on the volume of

an order and negotiated contracts), some manufacturers witnessed approximately a doubling in the core steel prices in 2005, as compared with 2002. The price continued to increase through 2007 until the effects of the U.S. financial crisis began to propagate throug hout the global economy causing a significant drop in steel prices. However, the price has recently st arted to

increase from inflation

, rising material input costs , and increased demand in Asia

.

During the Department of Energy’s (DOE) previous rulemaki ng on distribution transformers, spanning from 2000 to 2007, DOE received comments about the rapid increase in core steel prices. The two main issues raised were: 1) the cost

- effectiveness of higher standards given higher core steel prices, and 2) the ava ilability of sufficient quantities of higher grade

steels needed to manufacture more efficient transformers.

To address these comments and concerns, DOE studied the electrical core steel market, seeking to understand what had caused these changes. In con ducting this study, DOE reviewed publicly available reports, press releases, and articles pertaining to both the steel industry and the global core steel market. DOE also consulted with U.S. core steel manufacturers, several core steel processing companie s, and transformer manufacturer purchasing managers. Finally, DOE conducted additional engineering and life

- cycle cost analyses using material price sensitivities to understand how the higher material prices might impact the cost effectiveness of the stan dard levels being considered.

For the current rulemaking on distribution transformers, manufacturers commented during interviews for the preliminary analysis that core steel prices and core steel availability were still a concern in the industry. Manuf acturers indicated that higher standard levels would likely result in greater demand for higher grades of core steel , which have a limited global supply . In response, DOE updated its previous study on the core steel market. Additionally,

DOE examined mat erial price sensitivities to understand how fluctuating material prices might impact the cost effectiveness of the standard levels being considered (see Appendix 5C).

Section 3A.1 of this appendix provides background on the U.S. and international core steel markets and U.S. import/export data. Section 3A.2 describes the cur rent global core steel

market. Section 3A.3 presents U.S. electrical s teel pricing data and a description of the pricing, supply, and suppliers of amorphous metal

. Finally, Section 3A.4 provides brief company profiles of the major global core steel manufacturers.3A

- 2

3A.1 INTRODUCTION

Energy

- efficient, grain oriented electrical ste el is a unique product. It has a high silicon content, which complicates its manufacture. It has to be carefully processed, rolled to the correct thickness, and heated and cooled at controlled rates to facilitate the growth of steel grains. Globally, ab out 13.3 million metric tonnes (―tonnes‖) of electrical steel were produced in 2008, representing a little over 1 percent of the global steel market. Of this 13.3M tonnes of electrical steel, only 16 percent, or 2.16M tonnes, were attributable to grain or iented electrical steel, the type used in distribution transformers. Estimates show that 2.5M tonnes of grain oriented

electrical steel w ere produced in 2009

. 1 It is a highly specialized niche market product that is essential for the production of distri bution transformers.

3A.1.1 U.S. Steel Market History

The U.S. steel market has experienced volatility over the last three decades. During the 1980s and the 1990s, mills were closed, and producers reduced their workforce and capacity, while investing in new ste el processing technologies. This restructuring resulted in productivity increases, with the U.S. emerging as a world leader in low cost steel production. Prosperity in the steel industry continued through 1996 as capacity and demand increased.

However, in 1997 the steel market began to change as imports increased to meet the growing U.S. demand. Steel imports increased seven percent from 1996 to 1997, in part due to the relative strength of the dollar in the late 1990s. 2 In 1998 the change was noticed as hot rolled steel imports increased by 70 percent, prices dropped nearly 20 percent, capacity utilization rates decreased to 75 percent, and six steel companies declared bankruptcy. 3 The "1998 steel import crisis" was caused in part by the Asian financi al crisis that began in 1997, in which the currencies of several countries plummeted, in concert with sharp declines in steel consumption in

these countries. 2

The years 1998, 1999, and 2000 were the three highest import years in U.S. steel history at the time, which drove down prices. Imports for several major product lines, including rebar, coiled plates, and cold rolled steel, continued to increase and some U .S. producers were forced to declare bankruptcy. The high value of the U.S. dollar during that time period contributed to the

crisis.

From 2000 to 2007, the U.S. steel market, and more specifically the US electrical steel market, began to experience pres sure from several other directions. The demand in China and India for high

- efficiency, grain oriented core steel limited availability to the rest of the world and drove up prices. Combined with cost

- cutting programs and technical innovation at their

resp ective facilities, the lower value of the U.S. dollar enabled domestic core steel suppliers to become globally competitive exporters.

In late 2007, the U.S. steel market began to decline with the onset of the global economic crisis. U.S. steel manufacturing dropped to nearly 50 percent of production capacity in 2009 from almost 90 percent in 2008. Only in China and India did the producti on and use of electrical grade steel increase for 2009. 4 In 2010, the price of steel began to increase. However, it wa s3A

- 3

more a reflection of the continually increasing cost of material inputs, such as iron ore and coking coal, than a definite market reco very.

3A.1.2 U.S. Electrical Steel Market Key Players

There are two domestic manufacturers of grain oriented electrical steels, AK Steel and Allegheny Ludlum. Both companies produce grain oriented electrical steel for domestic use and export. AK Steel is th e o nly domestic producer of non

- oriented electrical steel, sometimes used in low cost stacked cores. AK Steel is also the only domestic producer of high permeability,

domain

- refined (laser

- scribed) core steel, used in high

- efficiency stacked cores.

AK Stee l, founded in 1899 and headquartered in Middletown, Ohio, employs more than 8,400 people in Ohio, Kentucky, Indiana, and Pennsylvania. W ith over $5 billion in sales, the

company produces flat rolled carbon, stainless, and electrical steel products. AK St eel produces a range of electrical steels, including oriented steel grades of M2, M3, M4, M5 and M6, non

oriented standard steel grades of M15 to M47, high

- permeability steels, and domain refined, laser scribed steels, H

- O DR, H

- 1 DR, and H

- 2 DR. 5

Alleghe ny Ludlum Corporation, headquartered in Pittsburgh, PA, operates specialty metals manufacturing facilities in Pennsylvania, Connecticut, Massachusetts, Indiana, and Ohio. Allegheny Ludlum employs approximately 3,800 people, and in addition to its other st ainless and specialty steel products, produces grain oriented steel with grades from M2 to M6. 6

Other key players in the U.S. core steel market include core steel wholesalers and processors. National Materials LP, an electrical steel processing and distr ibution company, has locations in Pennsylvania, Illinois, California, Michigan, and Mexico, and provides U.S.

transforme r manufacturers with both grain oriented and non

- oriented slit core steel. The Tempel Steel Company, located in Chicago, Illinois, prod uces shunt and cut core sections and E

- I laminations. The Ontario, Canada plant of Cogent Power, Inc., a joint venture between two international steel manufacturers, produces finished wound and stacked transformer cores and

slits core steel for U.S. trans former manufacturers. Lastly, LakeView Metals Inc., based in Illinois, supplies non

- oriented, grain oriented, and amorphous electrical steel products.

3A.1.3 International Electrical Steel Market Key Players

In addition to the two domestic producers, AK Steel a nd Allegheny Ludlum, there are currently eleven major international companies producing grain oriented electrical steel. These companies and their respective 2009 grain oriented electrical steel output are listed in Table 3

. 1

. All of these companies, except Allegheny Ludlum, also offer non

- oriented electrical steels.3A

- 4

Table 3

. 1 Grain Oriented Electrical Steel Key Players

Company Country 2009 Production
[1,000 metric tonnes]
Wuhan Iron and Steel Company
( WISCO ) China 440

Novolipetsk Steel ( NLMK ) Russia 344

AK Steel United States of America 312
Thyssen Krupp Electrical Steel
(TKS) Germany, France, India 250

The Pohang Iron and Steel
Company ( P OSCO) South Korea 250

Nippon Steel Corporation
(NSC) Japan 243

JFE Steel Corporation Japan 160
Allegheny Ludlum (ATI) United States of America 109

ArcelorMittal Brazil, Czech Republic 107
Orb (Tata Steel, Cogent Power) United Kingdom 90

Baosteel Group Corporation China 90
Stalprodukt S.A. Poland 62
Angang Steel* China 300 (projected)

ArcelorMittal and Hunan Valin
Steel Group (Joint Venture)** China 200 (projected)

* Angang Steel is currently developing a facility. It is expected to be completed in late 2010. 7

** ArcelorMittal and Hunan Valin have begun a 50

- 50 joint venture to develop a facility in China. It is e xpected to be completed in 2010. 8

Nippon Steel produc es eight types (each with several grades) of grain

- oriented electrical steel and five types of non

- oriented electrical steel. JFE Steel produces nine types (each with several grades) of grain

- oriented electrical steel and six types of non

- oriented electri cal steel. Novolipetsk has an annual capacity of 350,000 tonnes of electrical steel, including grain oriented

a nd non

- grain oriented steel. 9 Wuhan has an annual capacity of 2 million tonnes of electrical steel, making it the largest electrical steel produ ction base in the world. ThyssenKrupp Electrical Steel (TKES) produces grain

- oriented steel, while ThyssenKrupp Stahl AG produces non

oriented electrical steel grades. See section 3A.4 at the end of this document for brief profiles on each of these players in the core steel market.

3A.1.4 U.S. Import/Export Data

Since the import crisis of 1998, the Federal government has monitored steel imports more closely. The Steel Import Monitoring and Analysis (SIMA) System was established in 2003 and reports amounts and types of steels being imported and exported monthly an d annually. a

a The U .S. Department of Commerce

- International Trade Administr ation's Steel Import Monitoring and Analysis System is available online at <www.ia.ita.doc.gov/steel/license>.3A

- 5

From 2008 to 2009, imports of electrical steel fel l from 110,000 tonnes to 60,000 tonnes, indicating nearly a 50 percent reduction. This decline represents the continuing effects of the economic crisis beginning in late 2007. The Specialty Steel Industry of North America, a trade

association based in Washington, D

. C

. , reports that the U.S. co nsumption of electrical grade steel was approximately 345,000 tons in 2009, a 4 3 percent decrease from 2008. 10 This U.S. consumption total includes core steel for more equipment than simply distribution transformers. However, DOE did prepare an estimate o f the total consumption of core steel for distribution transformers by evaluating the shipment and engineering analyses. DOE estimated that approximately 200,000 tons of core steel is used each year for producing distribution

transformers in the United St ates.

On the exporting side, the U.S. shipped 205,000 ton ne s of electrical grade steel outside its borders in 2009 compared to 277,000 ton ne s in 2008. In 2006, China and India imported about 13 percent of U.S. exported electrical steel while Canada and Me xico together imported nearly

50 percent . However, in 2009, China’s and India’s imports of U.S. electrical steel increased to about 40 percent while imports in Canada and Mexico decreased to only 25 percent of the total U.S. exports of electrical steel. 11

3A.2 CURRENT GLOBAL ELECT RICAL STEEL MARKET

DOE was informed by a range of experts that the prices of core steel have been volatile over the time period from 2006 to 2008, and have generally declined from their 2008 highs. These trends are primarily due to fou r factors:

1. The continued increase in global dema nd for grain oriented electrical steel, particularly in China and India;

2. Higher raw material prices to the core steel manufacturers (e.g., iron ore, coking coal, scrap steel) and higher processing energy co sts;

3. The low v alue of the U.S. dollar

, (low value increases the cost of imported steel and encourages domestic suppliers to export); and

4. The onset of the global economic recession and financial meltdown in late 2007.

These factors are discussed in the f ollowing sections.

3A.1.5 Asian Steel Consumption

Over the past decade, Asia's demand for electrical steel has increased astronomically. It is the only region in the world that increased consumption of electrical steel from 2008 to 2009. In particular, the coun tries of China and India, with economic growth rates o f 9.1 percent and 7.4
percent

, respectively, have both become large producers and importers of electrical steel as they expand their electrical grids. 123A

- 6

China became the largest steel consum er in the world when it surpass ed the consumption

of the United States a nd J apan combined in 2003. 13 Between 2003 and 2009, Chinese steel consumption increased from 240 million tonnes to around 540 million ton nes, a 125 percent

increase. 14 Electrical steel i s of great importance in China, due to the country's increasing energy consumption, concomitant with their strong economic growth. Not only is China putting new transformers into use, they are also replacing older transformers to improve grid reliability. China is seeking higher efficiency, grain oriented steels to reduce energy losses. Construction of a highly efficient grid will offset some of China's need for generation capacity. This continual high level of demand in China offset some of the downwar d pressures on electrical steel prices during the global recession.

Steel consumption has also increased rapidly in India since 2003, when consumptio n increased about 70 percent. 14 The World Steel Association forecasts that steel demand in India will increase to nearly 72 million tonnes of finished steel product by 2011 making India the third largest consumer. 15

3A.1.6 Core Steel Manufacturer Input Prices

A shortage of raw materials for making steel, particularly iron ore, is contributing to the price increases. Production of iron ore fell in 2009 for the first time in seven years due to the global recession. However, prices remained high due to record level trading , which was up 7.4
percent from the previous year. The increase in trading was the result of higher Chinese imports, driven by growing demand, combined with a fall in Chinese domestic production. 16 China used to be the world ́s largest producer of iron ore, but now due to the exhaustion for their domestic resources, occupies fourth place after Australia, Brazil, and India.

In 2009, worldwide production of iron ore fell by 6.2 percent to 1.59 billion tons. 16 Three companies supply approximately 35 percent of the world’s iron ore: Brazil's Companhia Vale do Rio Doce SA (CVRD) and the Anglo Australian companies in Australia: Rio Tinto and BHP

Bi lliton. In the past, China entered into long term supply contracts with mining companies that supply these raw materials to secure sufficient quantities of iron ore for its growing economy. However, in 2010 these three suppliers stopped using annual iron ore benchmark prices and

turned to more flexible index

- based pricing, bringing even more volatility to the market. 17

Coke is another raw material needed for steel production that is in short supply. Coke is used to produce about 66 percent of steel world wide. Within the U.S., the domestic steel depression has caused the closing of many coke production sites. Additionally, U.S. exports of coke have increased, as nearly two thirds of all U.S. coking coal w as exported in 2009. China, a large producer of c oke, has decided to keep much of this material within its borders, while also increasing imports to meet its growing steel production demand. China imported 34 million tonnes of coking coal in 2009, which is almost a fivefold increase over 2008. 18 These f actors have contributed to a rise in coke prices from $129 per ton in 2009 to over $200 per ton in

2010. 19

An alternative method to using iron ore and coke to fabricate steel is the use of steel scrap. However, in recent years the availability of steel sc rap in the United States has3A

- 7

continually declined. Despite a worldwide decline in steel production, U.S. scrap exports continued to increase, and in 2009, the United States exported nearly one

- third of all the scrap it produced. Scrap exports in 2009 wer e 46.7 percent of domestic scrap consumption, compared to only 32.6 percent in 2008, and less than 20 percent in 2005.

China is the overwhelming beneficiary of the increase, as U.S. scrap exports to China have more than doubled, even though both U.S. an d global steel production fell sharply. Scrap prices peaked in the middle of 2008, before falling sharply. However, by December 2008 the price began to rise and has continued to move sharply upwards through 2010. The American Metal Market (AMM) price fo r shredded auto scrap in March 2010 was $350 per ton, while the price for ―#1 busheling‖ was $443.75. Figure 3

. 1 i llustrates the volatility in U.S. scrap prices

over the past two years. 20

Figure 3

. 1 Average Annual Prices for Grain Oriented Steels in the U.S. ($/lb)

Source: American Metal Market, www.amm.com

These rising raw material prices, in conjunction with high energy prices, have caused large U.S. steel producers to place surcharges on core steel. U.S. electrical steel manufacturers say these surcharges are needed to protect against raw material and ene rgy cost fluctuations.

Table 3

. 2 presents the January 2009

– October 2010 electrical steel surcharges implemented by Allegheny Ludlum and AK Steel. Each month these su rcharges are adjusted based on the prices of raw materials and energy used to manufacture the products.3A

- 8

Table 3

. 2 Alloy Surcharge for Electrical Steels (US$/ton)

200 9 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Allegheny

Ludlum 207 321 299 227 205 156 168 181 245 266 268 288

AK Steel 10 165 165 100 55 10 70 75 170 185 210 185

2010 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Allegheny

Ludlum 279 309 385 391 446 462 485 469 458 433

AK Steel 155 235 325 330 420 435 395 385 350 350

Source: AK Steel and Allegheny Ludlum press releases.

These surcharges decreased severely in 2009 due to the global economic crisis, but have increased in 2010 due to greater market activity and higher raw material prices.

3A.1.7 Value of the U.S. Dollar

The value of the U.S. dollar has dropped in recent years against other currencies, affecting the U.S. core steel market. As the value of the dollar declines, the cost of imported core steel paid by domestic transformer manufacturers increases. The cost of raw materials, particularly scrap, to domestic steel manufacturers also increases, creating higher steel prices. Conversely, core steel produced in the U.S. becomes an attractive export, since its cost to foreign consumers is lower. These factors drive up core steel prices paid by U.S. transformer

manufacturers.

Table 3

. 3 illustrates the decrease in value of the U.S. dollar between 2009 and 2010. The currency conversion rates are provided with those of several other countries.

Table 3

. 3 Selected International Currency Rates per U.S. Dollar

1 Unit / USD

Currency Average 2009 Average 2010 (to date 9/13/10) Percent Change [%]

Euro 0.719 0.762 6 .0

Chinese Yuan 6.841 6.822

- 0.3 Japanese Yen 93.61 7 89.91 8

- 4.0 Indian Rupee 48.85 0 46.15 8

- 5.5

Russian Rouble 31.81 5 30.28 8

- 4.8

Canadian Dollar 1.142 0.654

- 43 .0

South Korean Won 1279. 077 1168 .795

- 8.6

British Pound 0.6 41 0. 654 1.9
Source: The OANDA online historical exchange rates, http://www.oanda.com/currency/historical

- rates

.3A

- 9

3A.1.8 Global Economic Recession

The U.S. recession began in December of 2007 and had profound impacts on the entire global economy through 2009. In 2008, real demand for core steel was shrinking. However, global steel prices were increasing rapidly as a result of volatile input costs and higher energy and transport charges. Due to the rising price, companies were only purchasing for their immediate requirements and producers were keeping inventory levels at a minimum, which significantly reduced the demand for steel p roducts, such as core steel. 21 In October of 2008 the weakening economies of the U.S. and the European Union (EU) had sufficiently halted demand for steel causing the glo bal price of steel to plummet. 22

The global crisis had badly affected export business and major steel companies made significant cuts in production t o try to stabilize the situation. The global financial crisis pushed the world steel industry into recession, as the demand for steel contracted sharply, particularly in North America, Europe and Japan. Steelmakers introduced major production cuts, reduc ing output to nearly 40 percent of capacity. These combined effects caused the global steel price to

decli ne in late 2008 through 2009. 23 Still, other companies like Angang Steel and ArcelorMittal were developing facilities for expanded electrical steel p roduction, which would further expand the gap between supply and demand.

3A.3 U.S. ELECTRICAL STEE L PRICING

3A.1.9 U.S. Electrical Steel Producers

AK Steel

AK Steel’s annual report gives insight into the outlook of the domestic steel market. AK Steel expected that th e lower selling prices experienced during 2009 would continue through 2010 and the foreseeable future. While prices could increase above the 2009 levels, it seemed unlikely that prices would return to their 2008 levels. AK Steel continued to apply surcha rges to steel prices to mitigate the impacts of fluctuating raw material and energy costs. While AK Steel previously made many long

- term contracts with fixed selling prices, over 80 percent of current contracts now implement price surcharges.

AK Steel no ted that many domestic and foreign steel manufacturers were increasing their production capacity and expected sales to the United States. In particular, Chinese steel manufacturers have increased production capacity in recent years. As a result, the glob al price of steel could decline if supply outpaces demand, though steel manufacturers generally expect higher demand than 2009 levels. 24

Allegheny Ludlum

Allegheny Ludlum expressed a strategic focus on high va lue specialty steels like grain oriented electrical steel. During 2009, sales of high value steels represented 61 percent of its total sales compared to 42 percent of sales in 2002. Similar to AK Steel, Allegheny Ludlum3A

- 10

mitigated variable material prices by releasing monthly surcharges for the price of electrical

steel. 25

3A.1.10 Steel Pricing

Since demand exceeded supply in late 2003, steel prices, including grain oriented electrical steel, started to increase. In 2005, prices of other types of steel started to decrease, but those of grain or iented electrical steels did not. Prices continued to increase through 2008, when they fell sharply as a result of the global economic recession. This reduction in core steel prices was somewhat offset by increasing demand from China and India. Prices b egan to stabilize in 2010, but were not expected to increase to the 2008 levels in the near future.

It is important to note that, while made from the same raw materials, the prices of electrical steel do not necessarily follow general steel market trend s.

3A.1.11 U.S. Electrical Steel Pricing

DOE contracted Optimized Program Service, Inc. (OPS) to develop material price estimates for the engineering analysis. OPS used data from their own records as well as data provided by transformer manufacturers and materia l suppliers and wholesalers. Although not all U.S. transformer manufacturers pay the same amount per pound for electrical

- grade steels due to varied contract negotiations, these prices are intended to be representative of a standard quantity

order for a m edium to large scale U.S. transformer manufacturer. DOE then refined these price estimates through conversations with transformer manufacturers in 2010. Figure 3

. 2 illustrates

the five

- year price trend for grain oriented steels.3A

- 11

Figure 3

. 2 Average Annual Prices for Grain

- Oriented Steels in the US (2010$/lb)

The engineering analysis also examined three types of spec ialty electrical steels: ZDMH, SA1, and H

- O DR. ZDMH

— mechanically scribed, deep domain

- refined core steel

— is a patented product manufactured by Nippon Steel Corporation in Japan. The domain refinement is able to survive the annealing furnace; therefore, this steel is used for highly efficient wound cores. SA1, Metglas b amorphous material, is highly efficient and is also used in wound

- core configurations. H

- O DR, the most efficient steel used in stacked core configurations, is manufactured domestically by AK Steel. H

- O DR undergoes a laser scribing process that

decreases the losses associated with the st eel by as much as 10 percent. 26 Figure 3

. 3 illustrates

the his torical price trends of these steels from 2006 to 2010. Note that the amorphous material (SA1) represents the cost per pound of a finished core, while the other two steels rep resent the

raw material price. Additionally, DOE only considered the amorphous price from 2008 to 2010 because this is when North American amorphous core manufacturers began production. DOE believes the price of core production by foreign manufacturers prior to 2008 is no longer representative of the current price for amorphous core s in North America

.

b Registered trademark of Metglas, Inc., a wholly owned subsidiary of Hitachi Metals, Ltd., Tokyo, Japan.3A

- 12

Figure 3

. 3 Average Annual Prices for Specialty Steels in the US (2010$/lb, note: SA1 is finished core)

3A.1.12 Amorphous Core Material

Amorphous core material has been in existence for more than 35 years. Hitachi Metals is the only global supplier of the material. While Hitachi Metals is based in Japan, it also has a facility in the United States where amorphous metal is produced. Hitachi sells the material in the United States through a w holly

- owned subsidiary called Metglas ® . This U.S. facility currently has three production lines, and can produce approximately 41,000 tonnes of amorphous steel per year. The Hitachi facility in Japan has two production lines, and can produce 30,000 tonne s per year. However, Hitachi is upgrading its Japanese facility to add two additional production lines, which will bring its capacity to 100,000 tonnes per year. This facility upgrade is expected to finish in 2010, and will bring Hitachi’s total amorphou s capacity to 141,000 tonnes.

In addition to Hitachi Metals, one other supplier is known to be producing amorphous metal commercially. A company based in China called Advanced Technology & Materials (AT&M) has production capacity of 40,000 tonnes per year. 27 This company is not considered a global supplier, however, because it is not known to supply amorphous metal outside the Chinese market. Several other companies have attempted to produce amorphous metal in recent years,

but none are known to be su pplying the marketplace.

Therefore, the current total global capacity for amorphous metal is 181,000 tonnes per year, of which 40,000 tonnes are exclusively available to the Chinese marketplace. The3A

- 13

remaining 141,000 tonnes are sold in the global marketp lace. Compared to the 2

. 5 M tonnes of grain

- oriented electrical steel produced in 2009 , amorphous metal constitutes less than six percent of the global supply for electrical steel.

3A.1.13 Material Price Sensitivity Analysis

DOE considered material prices from 20 06

- 2010 (in constant 2010$) in its analysis, and used the 2010 material prices as the reference case for its analysis. Many manufacturers and suppliers of core steel indicated that the 2010 price was indicative of the expected material prices

for the next several years. They did not expect material prices to rise back to the highs seen in 2008 for the near future, and identified 2008 as a maximum material price scenario. DOE examined a material price sensitivity based on 2008 prices and 2006 prices as th e high price and low price scenarios, respectively. Detail on these sensitivities and the specific material prices can be found in appendix 5C.

3A.4 ELECTRICAL STEEL MAN UFACTURER PROFILES

3A.1.14 AK Steel

AK Steel, founded in 1899 and headquartered in Middletown, Ohio , employs more than 6,200 people in Ohio, Kentuck y, Indiana, and Pennsylvania. 28 W ith $4.1 billion in sales, the

company produces flat rolled carbon, stainless, and electrical steel products. AK Steel produces a range of electrical steels, including orien ted steel grades of M2, M3, M4, M5, and M6, non

oriented standard steel grades of M15 to M47, and domain

- refined, laser scribed steels, H

- O DR,

H

- 1 DR, and H

- 2 DR. In 2009, AK Steel produced 312,000 tonnes of g rain oriented electrical

steel. 1

3A.1.15 Allegheny Ludlum

Allegheny Ludlum Corporation, headquartered in Pittsburgh, PA operates specialty metals manufacturing facilities in Pennsylvania, Connecticut, Massachusetts, Indiana, and Ohio. In 2009, Allegheny Ludlum had revenue of approximately $3.1 billion. In addition to its other stainless and specialty steel products, it produces grain oriented steel with grades from M2 to M6. In 2009, Allegheny Ludlum produced 109,000 tonnes of g rain oriented electrical steel. 1

3A.1.16 Nippon Steel Corporation

In 1970, Yawata Iron and Steel and Fuji Steel merged to form Nippon Ste el Corporation. Located in Tokyo, Japan, Nippon Steel has about 15,500 employees and produces over 28 million metric tons of crude steel annually. Nippon produces grain oriented steel with grades

from M2 to M6 and non

- oriented standard steel grades of M1 5 to M45. In 2009, Nippon Steel produced 243,000 tonnes of grain oriented electrical steel. 13A

- 14

In 2009, 20 percent of Nippon Steel's exports went to China, whi le 60 percent were distributed among other Asian regions, 5 percent to North America, 4 percent to South America, and 2 percent to Europe. The remaining 9 percent were disbursed between Africa, the Middle East, and Oceania. 29

3A.1.17 JFE Steel Corporation

Another Japanese company, JFE Steel Corporation, was formed in December 2001 from

a merger between Kawasaki Steel and NKK Corp oration

. It produced a total of 29.3 million

ton ne s of crude steel in 2008. JFE Steel produces several types (each with several grades) of grain oriented electrical steel and non

- oriented electrical steel. In 2009, JFE Steel Corporation produced 160,000 tonnes of g rain oriented electrical steel. 1

3A.1.18 Novolipetsk Metallurgical Plant

Novolipetsk Steel (NLMK) started in 1931 when iron ore and limestone deposits were discovered in Lipetsk, Russia. NLMK is now the largest steel sheet producer in Russia. In 2006 it acquired Viz Stal Metallurgical Plant , which wa s the largest producer of grain oriented steel and the second largest electrical steel producer in Russia. 30

NLMK’s share of global grain oriented electrical steel production is nearly 11 percent and over 80 percent of its products are exported. In 2007, it p roduced 189,000 tonnes of grain oriented steel and 19,000 tonnes of non

- grain oriented steel. 31 In total, NLMK has a production capacity of 9.4 million metric ton ne s of crude steel annually. NLMK’s total transformer steel production capacity is approximately 350,000 tonnes annually. 32 In 2009, NLMK produced 344,000 tonnes of grain oriented electri cal steel. 1

3A.1.19 Tata Steel (Cogent Power Ltd.)

Tata Steel is the world’s tenth largest steel producer, with a crude steel capacity of over

28 million tonnes. In April 2007, Tata Steel acquired Corus, an international metal company that provides electrical steel through its wholly

- owned subsidiary, Cogent Power Ltd. 33 The electrical steel division of Cogent Power is comprised of Orb Works, located in South Wales,

a nd Surahammars Bruk, headquartered in Sweden. Orb Works and Surahammars both produce a wide variety of both grain oriented and non

- oriented steels. In 2009, Orb produced 90,000 tonnes of grain oriented electrical steel. 1

3A.1.20 ThyssenKrupp Steel

ThyssenKrupp Steel, a subsidiary of ThyssenKrupp AG, entered the electrical steel market in 1989. In 2002 ThyssenKrupp Electrical Steel (TKES) was formed to consolidate all of the company's electrical steel activities. Further restructuring in 2004 created ThyssenKrupp Stahl AG to handle the company's non

- oriented electrical steel products. TKES now deals solely

with grain oriented steels. TKES is headquartered in Ess en, Germany and has plants in3A

- 15

Germany, India, Deutschland, Italy and France. ThyssenKrupp has a production capacity of approximately 1.5 million ton ne s of electrical steel annually, making it the largest electrical steel producer in Europe and the thir d l argest producer worldwide. 34 In 2009, TKES produced 250,000 tonnes of g rain oriented electrical steel. 1

3A.1.21 China Steel Corporation

China Steel Corporation, the o nly integrated steel producer in Taiwan, was founded in 1971 and exports approximately 25 percent of its steel production volume. It currently has a crude steel production capacity of approximately 7.8 million tonnes and produces fou r grades of

electrical steel. 35 China Steel Corporation does not produce grain oriented electrical steel.

3A.1.22 Pohang Iron and Steel (POSCO)

POSCO, located in the port city of Pohang, South Korea, was founded in 1958, produces

30 million ton ne s of steel annually, and has nearly 30,000 employees. In 2009, POSCO had

about one million tonnes of electrical steel capacity annually. 36 POSCO is considering partnering with Steel Authority of India Limited (SAIL) to build a production complex with a proposed annual capaci ty of about 3 mi llion tonnes. 37 In 2009, POSCO produced 250,000 tonnes of grain oriented electrica l steel. 1

3A.1.23 Shanghai Baosteel Group Corporation

Shanghai Baosteel, formerly Ba oshan Iron & Steel, is state owned and China's largest iron and steel maker. Baosteel and its 22 wholly

- owned subsidiaries have an annual production capacity of around 30 million metric ton ne s of crude steel and 600,000 tonnes of electrical steel.

In 200 9, it produced 90,000 tonnes of g rain oriented electrical steel. 1

3A.1.24 Wuhan Iron and Steel Company

Wuhan (WISCO), a Chinese company, produced 30 million metric to n ne s of crude steel in 2009, and increased its annual electrical steel capacity to 2 million metric ton ne s in 2010 with the completion of three new production lines. Currently, more than half of domestic silicon steel

dem and in China is met by WISCO. 38 In 2009, WISCO produced 440,000 tonnes of grain oriented electrical steel, making it the largest pr oducer of grain oriented steel. 1

3A.1.25 ArcelorMittal

ArcelorMittal, a Brazilian company, was founded in 1944 and in 2009 produced a total of 73 million tonnes of crude steel, representing approximately 8 p ercent of world steel output. 39
ArcelorMittal offers both grain oriented and non

- oriented electrical steel. In 2010, ArcelorMittal proposed a 50

- 50 joint venture with SAIL to set up a steel facility in Bokaro, India. 37
Additionally, in 2008 ArcelorMittal entered into a joint venture with Hunan Valin Steel Group to3A

- 16

build a steel facility in China with a projected annual capacity of 200,000 tonnes of grain

oriented steel. 8 In 2009, ArcelorMittal produced 107,000 tonnes of g rain oriented electrical

steel. 1

3A.1.26 Stalprodukt S.A.

In 1992, the Polish company Stalprodukt S.A. purchased two former Sendzimir Steel Works production plants. Stalprodukt S.A. produces four g rades of grain oriented electrical steels. In 2009, Stalprodukt S.A. produced 62,000 tonnes of g rain oriented electrical steel. 1

3A.1.27 Angang Steel

Angang Steel, located in China, was incorporated in 1997 with Anshan Iron and Steel Group Complex as its sole promoter. It produces a wide array of steel products, and is building facilities for grain oriented steel production. The facilities are expected to start production at the end of 2010, and will have the capacity to produce 300,000 tonnes of gra in orient ed electrical steel annually. 73A

- 17 1 Wupperman, Dr. Carl

- Dieter. ―Prospective Development of a Challenging Product of the Steel Industry.‖ The 4th International Workshop on Magnetism and Metallurgy. June 9

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- International Trade Administration, Global Steel Trade: Structural Problems and Future Solutions, Chapter 2: The U.S. Steel Import Crisis , 2000, Washington D.C.

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This material is available in Docket # 83. Contact Ms. Brenda Edwards

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- 2J, 1000 Independence Avenue, SW, Washington, DC, 20585

- 0121, telephone (202) 586

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- 01/25/content_300957.htm>. This material is available in Docket #

83. Contact Ms. Brenda Edwards

- Jones, U.S. Department o f Energy, Building Technologies Program, Mailstop EE

2J, 1000 Independence Avenue, SW, Washington, DC, 20585

- 0121, telephone (202) 586

- 2945 for more

information.

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- 08.htm>.

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in Docket # 83. Contact Ms. Brenda Edwards

- Jones, U.S. Department of Energy, Building Technologies Program, Mailstop EE

- 2J, 1000 Independence Avenue, SW, Washington, DC, 20585

- 0121, telephon e (202) 586

- 2945 for

more information.

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