3A -i APPENDIX 3A. CORE STEEL MARKET AN ALYSIS

TABLE OF CONTENTS

3A.1 OVERVIEW ............................................................................................................2
3A.1.1 Overall U.S. Steel Market History ...............................................................2
3A.1.2 U.S. Electrical Steel Market Key Players .....................................................3
3A.1.3 International Ele ctrical Steel Market Key Players .......................................3
3A.1.4 U.S. Import/Export Data ..............................................................................5
3A.2 CURRENT GLOBAL ELECT RICAL STEEL MARKET .....................................5
3A.1.5 Asian Steel Consumption .............................................................................6
3A.1.6 Core Steel Manufacturer Input Prices ..........................................................6
3A.1.7 Value of the U.S. Dol lar ...............................................................................9
3A.1.8 Global Economic Recession .......................................................................10
3A.3 U.S. ELECTRICAL STEE L PRICING .................................................................10
3A.1.9 U.S. Electrical Steel Producers ..................................................................10
3A.1.10 Steel Pricing ...............................................................................................11
3A.1.11 U.S. Electrical Steel Pricing .......................................................................11
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 .....................................................................................14
3A.1.16 Nippon Steel Corporation ..........................................................................14
3A.1.17 JFE Steel Corporation ................................................................................14
3A.1.18 Novolipetsk Metallurgical Plant ................................................................14
3A.1.19 Hitachi Metglas ..........................................................................................15
3A.1.20 Tata Steel (Cogent Power Ltd.) .................................................................15
3A.1.21 ThyssenKrupp Steel ...................................................................................15
3A.1.22 China Steel Corporation (CSC) .................................................................15
3A.1.23 Pohang Iron and Steel (POSCO)................................................................15
3A.1.24 Shanghai Baosteel Group Corporation ......................................................16
3A.1.25 Wuhan Iron and Steel Company ................................................................16
3A.1.26 ArcelorMittal ..............................................................................................16
3A.1.27 St alprodukt S.A. .........................................................................................16
3A.1.28 Angang Steel ..............................................................................................16

LIST OF TABLES

Table 3.1 Grain Oriented Electrical Steel Key Players ...................................................... 4 Table 3.2 Alloy Surcharge for Electrical Steels (US$/ton) ................................................ 9 Table 3.3 Selected International Currency Rates per U.S. Dollar ..................................... 93A

- ii LIST OF FIGURES

Figure 3.1 Average Annual Prices for Grain Oriented Steels in the U.S. ($/lb) ................ 8 Figure 3.2 Average An nual Prices for Grain -Oriented Steels in the US (2010$/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 throughout the global economy causing a significant drop in steel prices.

During the Department of Energy’s (DOE) previous rulemaking 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 availability of sufficient quantities of higher grade
steels needed to manufacture more efficient transformers.

For the current rulemaking on distribution transformers, manufacturers commented during interviews for the preliminary analysis and NOPR that core steel prices and core steel availability remain a major concern in the industry.

To address these comments and concer ns, DOE studied the electrical core steel market in
detail . In conducting 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 companies, and
transformer manufacturer s. Additionally, during the stakeholder negotiations, several stakeholders offered valuable data and insight into the market to help redress these issues.

Nearly all manufacturers in all three superclasses indicated that higher standard levels would likely result in greater demand for higher grades of core steel, some of which have a limited global supply . In response, DOE updated its previous study on the core steel market. Additionally, DOE examined material 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 current 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 OVERVIEW

Energy

- efficient, grain

- oriented electrical steel 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 faci litate the growth of steel grains. According to the World Steel Association , about 8.7 million metric tons (“tonnes”) of electrical steel were produced globally in 2009 1 , E stimates from experts in the steel industry suggest that

, of the total electrical steel production in 2009, 2.5 million tonnes were for grain oriented
electrical steel. 2 It is a highly specialized niche market product that is essential for the production of distribution transformers.

3A.1.1 Overall U.S. Steel Market History

Extreme volatilit y has characterized the U.S. steel market 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 steel 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 inc reased 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. 3

3 In 1998 the change was noticed as hot rolled steel imports increased by 70 percent, pr ices dropped nearly 20 percent, capacity utilization rates decreased to 75 percent, and six steel companies declared bankruptcy. 4 The "1998 steel import crisis" was caused in part by the Asian financial crisis that began in 1997, in which the
currencies o f several countries plummeted, in concert with sharp declines in steel consumption in
these countries.

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 pressure 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 respective 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 production and use of electrical grade steel increase for 2009. 5 In 2010, the price of steel began to recover . However, it wa s more a reflection of the continually increasing cost of material inputs, such as iron ore and3A -3 coking coal, than a definite market recovery. Then again, in 2011, core steel prices fell rather dramatically.

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. As DOE understands it, AK Steel is th e only domestic producer of non-oriented electrical steel, sometimes used in low

- cost st acked 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 Steel, founded in 1899 and headquartered in Middletown, Ohio, employs approximately 6,600 people in Ohio, Kentucky, Indiana, and Pennsylvania. W ith $ 6 billion in
sales in 2010, the company produces flat rolled carbon, stainless, and electrical steel products. AK Steel produces a range of electrical steels, including grain oriented steel grad es 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 -0 DR, H -1 DR, and H- 2 DR. 6

Allegheny Ludlum Corporation, headquartered in Pittsburgh, PA, operates special ty metals manufacturing facilities in Pennsylvania, Connecticut, Massachusetts, Indiana, and Ohio. Allegheny Ludlum employs approximately 2,550 people, and in addition to its other stainless and specialty steel products, produces grain oriented steel with grades from M2 to M6. 7

Hitachi Metglas, headquartered in Tokyo, Japan, is the major global supplier of amorphous ribbon. While not owned by a U.S. company, the company operates a U.S. plant in Conway, South Carolina, with an annual capacity of more than 40,000 tonnes. Another current supplier of amorphous metal is based in China and currently only serves the Chinese market. A few other steel producers, including Posco and NEC TOKIN, have announced plan s to begin, or have recently begun, limited production of amorphous steel.

Other key players in the U.S. core steel market include core steel wholesalers and processors. National Materials LP, an electrical steel processing and distribution 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, produces shunt and cut co re 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. transformer 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 and Allegheny Ludlum, there are currently eleven major international companies producing grain oriented electrical steel. These3A -4 companies and their estimated installed capacity for grain oriented electrical steel output are
listed in Table 3.1

. Note that the capacities of these firms significantly depend on the mix of steels they produce. All else equal, a production mix weighted towards higher grade steel slows throughput relative to low er -grade steels. Therefore, it should not be inferred from the outputs listed below that the companies have the ability to produce any grade of steel at that level. Note
also that a ll of these companies, except Allegheny Ludlum, also offer non- oriented electrical
steels.

Table 3.1 Grain Oriented Electrical Steel Key Players

Company Country Estimated Installed Capacity for Grain Oriented Steel (2011

- 2014) a

Wuhan Iron and Steel Company ( WISCO ) [1,000 metric tons]

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

Hitachi Metglas Japan (with U.S. production) 106 Angang Steel China 100

.

Nippon Steel produces 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 electrical steel. Novolipetsk has an annual capacity of 350,000 tonnes of electrical steel, including grain oriented
and non- grain oriented steel. 8 Wuhan has an annual capac ity of 2 million tonnes of electrical steel, making it the largest electrical steel production base in the world. ThyssenKrupp ElectricalSteel (TKES) produces grain-oriented steel, while ThyssenKrupp Stahl AG produces nonoriented 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.

a Estimates are based on AK Steel’s “Comments on the Global Supply of Grain Oriented Electrical Steels” and industry research conducted by DOE.3A -5 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 and annually. b

From 2008 to 2009, imports of electrical steel fell from 110,000 tonnes to 60,000 tonnes, nearly a 50 percent reduction. This decline represents the continuing effects of the economic crisis beginning in 2008 . The Specialty Steel Industry of North America, a trade association based in Washington, D.C., reports that the U.S. consumption of electrical grade steel was approximately 198,500 tons in 2009, a 4 3 percent decrease from the 2008 figure of 345,000. 9

How ever, f rom 2009 to 2010 , imports of electrical steel rose from 65,600 tonnes to 94,300
tonnes, indicating nearly a 44 percent increase . This increase indicates the recovery of the steel industry from the economic crisis

. The U.S. consumption total includes core steel for more equipment than simply distribution transformers.

On the exporting side, the U.S. shipped 212,600 tonne s of electrical grade steel outside its borders in 2010, compared to 205,000 tonnes in 2009. In 2006, China and India imported about 13 percent of U.S. exported electrical steel while Canada and Mexico together imported nearly
50 percent

. In 2010, China’s and India’s imports of U.S. electrical steel increased to about 21 percent while imports in Canada and Mexico decreased to about 32 percent of the total U.S. exports of electrical steel. 10

3A.2 CURRENT GLOBAL ELECTRICAL 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 2011. Since peaking in 2008, prices first fell rapidly in 2009, then recovered in 2010, before dropping again in 2011. Several market forces have contributed to steel price volatility to varying degrees over this time period. T hese trends are primarily due to
f ive factors:

1. Persistent high global demand for grain oriented electrical steel, particularly in China and India;

2. Generally h igher raw material prices to the core steel manufacturers (e.g., iron ore, coking coal, scrap steel) and higher processing energy costs;

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, and, in the US market, a sharp decline in new building construction.

b 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 -6 These factors are discussed in the following sections.

3A.1.5 Asian Steel Consumption

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

, respectively, have both become large producers and importers of electrical steel as they expand their electrical grids. 11

China became the largest steel consumer in the world when it surpass ed the consumption
of the United States a nd J apan combined in 2003. 12 Since then, b etween 2004 and 2010, Chinese steel consumption more than doubled, further increas ing from 276 million tonnes to around 576
million ton nes, a 109 percent increase. 13 Electrical steel is of great importance in China, due to the country's increasing energy consumption attendant to its rapid real 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. The persistent growth in Chinese demand offset some of the downward pressures on electrical steel prices during the global recession.

Steel consumption has also increased rapidly in India since 2004, during which time consumption increased about 72 percent. 13 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. 14

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. 15 China used to be the world ́s largest producer of iron ore, but now due to the exhaustion of its domestic

resources, it 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. 15 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 Billiton. 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. 163A -7 Coke is another raw material needed for steel production that is in short supply. Coke is used to produce about 66 percent of steel worldwide. 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 al l U.S. coking coal w as exported in 2009. China, a large producer of coke, 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. 17 These factors have contributed to a rise in coke prices from $129 per ton in 2009 to over $200 per ton in
2010. 18

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 scrap in the United States has 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 were 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. and 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 for shredded auto scrap in March 2010 was $350 per ton, while the price for “#1 busheling” was $443.75. Figure 3.1 i llustrates the volatility in U.S. scrap prices over the past two years. 193A -8 Figure 3.1 Price of Steel Scrap in the U.S. ($/ Ton )
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– December 2010 electrical steel surcharges implemented by Allegheny Ludlum and AK Steel. Each month these s urcharges are adjusted based on the prices of raw materials and energy used to manufacture the products.3A -9 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 Nov Dec Allegheny

Ludlum 279 309 385 391 446 462 485 469 458 433 409 384

AK Steel 155 235 325 330 420 435 395 385 350 350 350 285

2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Allegheny

Ludlum 373 427 485 503 492 515 520 529 532 534 521 508

AK Steel 290 350 430 400 390 435 440 455 460 460 450 450
Source: AK Steel and Allegheny Ludlum press releases.

These surcharges decreased severely in 2009 due to the global economic crisis, but have increased recently 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 2011. 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 2011 Percent Change [%]

Euro 0.719 0.767 6.68%
Chinese Yuan 6.841 6.344 -7.27% Japanese Yen 93.61 7 77.68

- 17.02% Indian Rupee 48.85 0 54.074 10.69%
Russian Rouble 31.81 5 31.471

- 1.08%
Canadian Dollar 1.142 1.021

- 10.60%
South Korean Won 1279.077 1153.46 -9.82%
British Pound 0.6 41 0.643 0.31% Source: The OANDA online historical exchange rates, http://www.oanda.com/currency/historical

- rates

.3A

- 10 3A.1.8 Global Economic Recession

The lingering effects of the recent U.S. recession and financial crisis continue to affect
the electrical steel market. In 2008, real demand for core steel began 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 immediat e requirements and producers were keeping inventory levels at a minimum, which significantly reduced the demand for steel products, such as core steel. 20 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. 21

The global crisis had badly affected export business and major steel companies made significant cuts in production to try to stabilize the situation. Steelmakers introduced major production cuts, reducing output to nearly 40 percent of capacity. These combined effects caused the global steel price to decli ne in late 2008 through 2009. 22 Still, other companies like Angang Steel were developing facilities for expanded electrical steel prod uction.

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. In 2010, AK Steel shipped 5.7 million tons of steel, an increase of 44 percent over 2009 figures. 23 Although sales did not fully return to pre- recession levels and the majority of this steel is not grain

- oriented electrical steel , this overall increase signaled a recovery from the trough of the economic cycle.

AK Steel continues to apply surc harges to steel prices to mitigate the impacts of fluctuating raw material and energy costs , and these surcharges were increased in 2010 in order to cover higher raw material costs. While AK Steel previously made many long- term contracts with fixed sellin g prices, almost 90 percent of current contracts now implement price surcharges.

AK Steel noted 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 global price of steel could decline if supply outpaces demand.

Allegheny Ludlum

Allegheny Ludlum expressed a strategic focus on high va lue specialty steels like gra in oriented electrical steel. During 2010 , sales of high value steels represented 70 percent of its total sales compared to 42 percent of sales in 2002. Similar to AK Steel, Allegheny Ludlum mitigated variable material prices by releasing monthly surcharges for the price of electrical
steel. 243A

- 11 3A.1.10 Steel Pricing

Since demand began increasing relative to 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 oriented 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 began to stabilize in 2010, but then fell again in 2011, in part due to continued weakness in the U.S. housing market.

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 trends.

3A.1.11 U.S. Electrical Steel Pricing

DOE contracted Optimized Progr am 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 material 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 medium to large scale U.S. transformer manufacturer. DOE then re fined these price estimates through conversations with transformer manufacturers in 2010 and 2011. Figure 3.2
illustrates the five

- year price trend for grain oriented steels.

Figure 3.2 Average Annual Prices for Grain

- Oriented Steels in the US (2010$/lb)3A

- 12 The engineering analysis also examined three types of specialty electrical steels: ZDMH, SA1, and H-0 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. However, it has very limited use in the U.S. because of supply limitation. SA1, Metglas c amorphous material, is highly efficient and is also used in wound-core configurations. H-0 DR
and H- 1 DR , the most efficient steel s used in stacked core configurations, are manufactured domestically by AK Steel. H -0 DR undergoes a laser scribing process that decreases the losses associated with the steel by as much as 10 percent. 25 Figure 3.3 illustrates the historical price trends of these steels from 2006 to 2011. 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 cores in North America

.

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

3A.1.12 Amorphous Co re Material

Amorphous core material has been in existence for more than 35 years. Hitachi Metals is currently the only global supplier of the material with significant volume. While Hitachi Metals

c Registered trademark of Metglas, Inc., a wholly owned subsidiary of Hitachi Metals, Ltd., Tokyo, Japan. $

- $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50

2006 2007 2008 2009 2010 2011$/lb 

# Historical Prices (Specialty)

zdmh

sa1

h03A

- 13 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 wholly -owned subsidiary called Metglas ® . This U.S. facility currently has three production lines, and can produce approximately 46,000 tonnes of amorphous steel per year. The Hitachi facility in Japan has four production lines, and can produce 60,000 tonnes per year.

In addition to Hitachi Metals, one other supplier is known to be producing a significant
amount of amorphous metal commercially. A company based in China called Advanced Technology & Materials (AT&M) has production capacity of 40,000 tonnes per year, which is expected to increase to 100,000 tonnes per year by 2013. 26 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 , such as Posco and NEC TOKIN , have announced that they have begun to pursue commercial production of amorphous steel, but their production capacity is
still to be determined.

Therefore, the current known total global capacity for commercially available amorphous
metal is 146,000 tonnes per year, of which 40,000 tonnes are exclusively available to the Chinese marketplace. The remaining 106,000 tonnes are sold in the global marketplace. Compared to
the 2.5 million tonnes of grain- oriented electrical steel produced in 2009, amorphous metal
constitutes about 4 percent of the global supply for electrical steel.

3A.1.13 Material Price Sensitivity Analysis

DOE considered material prices from 2006-2011 (in constant 2010$) in its analysis, and
used both 2010 and 2011 ma terial prices as reference case s. Many manufacturers and suppliers of core steel indicated that the prices in these years were 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 exa mined a material price sensitivity based on 2008 prices and 2006 prices as the 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 PROF ILES

3A.1.14 AK Steel

AK Steel, founded in 1899 and headquartered in Middletown, Ohio, employs about 6,600 people in Ohio, Kentucky, Indiana, and Pennsylvania. 27

2 W ith $ 6 billion in sales in 2010, the

company produces flat rolled carbon, stainless, and electrical steel products. AK Steel producesa range of electrical steels, including oriented steel grades of M2, M3, M4, M5, and M6, nonoriented standard steel grades of M15 to M47, and domain- refined, laser scribed steels, H -0 DR, H-1 DR, and H-2 DR. In 2009, AK Steel produced 312,000 tonnes of g rain oriented electrical
steel.3A

- 14 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. 2

3A.1.16 Nippon Steel Corporation

In 1970, Yawata Iron and Steel and Fuji Steel merged to form Nippon Steel Corporation. Located in Tokyo, Japan, Nippon Steel has about 15,800 employees and produces almost 30
million metric tons of cr ude steel annually. 28 Nippon produces grain oriented steel with grades from M2 to M6 and non-oriented standard steel grades of M15 to M45. In 2009, Nippon Steel produced 243,000 tonnes of grain oriented electrical steel. 2

In 2009, 20 percent of Nippon Steel's exports went to China, while 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

tonne 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. 2

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, and produced over 11 million metric tons of crude steel in 2010. 30 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. 31

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 produced 189,000 tonnes of grain oriented steel and 19,000 tonnes of non- grain oriented steel. 32 In 2009, NLMK produced 344,000 tonnes of grain oriented electrical steel. 2 NLMK’s total transformer steel production capacity is approximately 350,000 tonnes annually. 333A

- 15 3A.1.19 Hitachi Metglas

Hitachi Metglas, headquartered in Tokyo, Japan, is the major global supplier o f amorphous ribbon. The company operates a U.S. plant in South Carolina, with an annual capacity of more than 40,000 tonnes.

3A.1.20 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. 34 The electrical steel division of Cogent Power is comprised of Orb Works, located in South Wales, and 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. 2

3A.1.21 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 he adquartered in Essen, Germany and has plants in Germany, India, Deutschland, Italy and France. ThyssenKrupp has a production capacity of approximately 1.5 million tonne s of electrical steel annually, making it the largest electrical steel producer in Europe and the third largest producer worldwide. 35

2 In 2009, TKES produced 250,000 tonnes of g rain oriented electrical steel.

3A.1.22 China Steel Corporation (CSC)

China Steel Corporation, the only integrated steel producer in Taiwan, was founded in 1971 and exports approximately 25 percent of its steel production volume. It currently has an
annual crude steel production capacity of approximately 13.4 million tonnes and produces fou r grades of electrical steel. 36 China Steel Corporation does not produce grain oriented electrical
steel. CSC is planning to invest $486 million in a new production line for electrical steel which would produce 150,000 to 200,000 tonnes of elect rical steel annually. 37

3A.1.23 Pohang Iron and Steel (POSCO)

POSCO, located in the port city of Pohang, South Korea, was founded in 1958, produced
35 million ton ne s of steel in 2010, and has approximately 30,000 employees. 38 In 2009, POSCO
had about one million t onnes of electrical steel capacity annually. POSCO is considering partnering with Steel Authority of India Limited (SAIL) to build a production complex with a proposed annual capacity of about 3 million tonnes. 39 In 2009, POSCO produced 250,0003A

- 16 tonnes of grain oriented electrica l steel. 2 In addition, the company approved a plan for commercializing amorphous metal production in 2010 and will soon begin production and marketing of amorphous metal with plans to produce up to 10 k ilo tons by 2014.

3A.1.24 Shanghai Baosteel Group Corporation

Shanghai Baosteel, formerly Baoshan Iron & Steel, is state owned and China's largest
iron and steel maker. Baosteel and its 22 who lly -owned subsidiaries have an annual production capacity of around 30 million metric tons of crude steel and 600,000 tonnes of electrical steel. In 2009, it produced 90,000 tonnes of g rain oriented electrical steel. 2

3A.1.25 Wuhan Iron and Steel Company

Wuhan (WISCO), a Chinese company, produced 30 million metric tons of crude steel in 2009, and increased its annual electrical steel capacity to 2 million metric tons 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. 40 In 2009, WISCO produced 440,000 tonnes of grain oriented electrical steel, making it the largest pr oducer of grain oriented steel. 2

3A.1.26 ArcelorMittal

ArcelorMittal, a Brazilian company, was founded in 1944 and produced a total of 90.6 million tonnes of crude steel in 2010, representing approximately 8 p ercent of world steel
output. 41

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. Additionally, in 2008 ArcelorMittal entered into a joint venture with Hunan Valin Steel Group to build a steel facility in China with a projected annual capacity of 200,000 tonnes of grain oriented steel. In 2009, ArcelorMittal produced 107,000 tonnes of g rain oriented electrical
steel. 2

3A.1.27 Stalprodukt S.A.

In 1992, the Polish company Stalprodukt S.A. purchased two former Sendzimir Steel Works production plants. Stalprodukt S.A. produces four grades of grain oriented electrical steels. In 2009, Stalprodukt S.A. produced 62,000 tonnes of g rain oriented electrical steel. 2

3A.1.28 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 began the mass production of grain oriented steel at the beginning of 2011 . The facilities are expected to have the capacity to produce 100,000 tonnes of grain orient ed electrical steel annually. 423A

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

- 2J, 1000 Independence Avenue, SW, Washington, DC, 2 0585

- 0121, telephone (202) 586

- 2945 for more information.

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< http://www2.chinadaily.com.cn/en/doc/2004

- 01/25/content_300957.h tm >. This material is available in Docket #
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- Jones, U.S. Department of Energy, Building Technologies Program, Mailstop EE

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

- 0121, telephone (202) 586

- 2945 for more
informat ion.

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– Further Reductions Anticipated

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- Jones, U.S. Department of 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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