A boost in electrical steel demand spurs U.S. producers to add capacity, but new federal rule proposal could upend the market
Above: An electrical engineer inspects transformer systems at an equipment control cabinet.
July 2023- A boost in electrical steel demand spurs U.S. producers to add capacity, but new federal rule proposal could upend the market
In a May 22 letter to President Joseph Biden and select Cabinet officers, nine industry groups called for an Electrical Steel Summit, citing the high demand and insufficient domestic capacity to produce such grades during a time when the U.S. is trying to further electrify great portions of the economy. U.S. consumers of electrical steel have long imported the product when domestic supply is short.
“As organizations representing the electrical steel value chain, we are concerned about the skyrocketing demand and limited availability of domestically produced electrical steel, which is a core component to the industries and products that we represent and vital to expanding electrification in the United States,” the letter states (see sidebar, page 21, for a list of letter signers).
The group urged the administration to prioritize sustainable supply because electrical steel is “critical to the national and economic security of the United States.”
Electric motors, transformers, electric vehicle chargers, generators and electromechanical equipment all require electrical steel due to its ability to reduce power loss. “Shortages of domestic electrical steel are contributing to significant and persistent supply chain challenges across our industries,” the trade groups claim.
The short supply limits the widespread adoption of electric vehicles, delays timelines for utilities to restore power following natural disasters, and contributes to an insufficient inventory of distribution transformers to meet the demand for new home and commercial construction, according to the letter.
While two domestic manufacturers have committed to expand output of grain-oriented electrical steel production (more on this later), “domestic supply levels will still fall far short to meet electrification goals and satisfy demand created by the Infrastructure Investment and Jobs Act and Inflation Reduction Act,” the parties claim.
As a first step, they suggest the president convene an Electrical Steel Summit to bring together stakeholders for a strategic discussion on the challenges to sustaining and growing domestic production of electric steel. A summit will allow users and manufacturers of electrical steel (utilities, electrical manufacturers, automakers, steelmakers, labor unions, builders and others) to come together to help solve the “supply crisis that threatens both the national security and economic outlook for the United States and to deliver on this administration’s goals for electrification and decarbonization.
A transformer stacking core uses laminated electrical steel. The purpose is to reduce eddy currents in the core, while keeping a high magnetic flux.
RISING DEMAND
During the first quarter of 2023, the U.S. imported 8,960 metric tons of electrical sheet and strip, up 58.7 percent from 5,647 metric tons during the same 2022 period, according to the U.S. Census Bureau.
A report from the National Renewable Energy Laboratory (NREL) predicts that plug-in electric vehicles could account for up to 76 percent of vehicle miles traveled in the United States by 2050. In the buildings and industrial sectors, “a significant increase in building appliance manufacturing and adoption would be needed as electric devices might provide up to 61 percent of space heating, 52 percent of water heating and 94 percent of cooking services in the combined commercial and residential sectors by 2050.
“Heat pumps are found to be key technologies for building electrification,” NREL researchers said. At the high end of the model predictions, over 170 million heat pumps will be needed by 2050 to provide water and space heating and cooling services to residential homes.
Without steel, none of the renewable energy sources are possible. Electrical steel is used extensively in solar power racks and in wind turbines.
DOMESTIC CAPACITY
On March 23, U.S. Steel Corp. said it will commission a new non-grain-oriented electrical (NOES) steel production line at its Big River Steel complex in Osceola, Arkansas. The line, to start up during third quarter, is expected to cost $450 million.
The new grade that will be produced, InduX, is a “very wide, ultra-thin and lightweight steel, having all the magnetic properties necessary for electric vehicles as well as generators and transformers,” the company stated. When fully operational, the line will produce up to 200,000 tons of InduX steel per year.
Last December, Cleveland-Cliffs Inc. introduced the Motor-Max line of nongrain- oriented electrical steel products for high-frequency motors and generators. The product is designed for high-speed motors, EV traction motors, aircraft generators and other rotating equipment.
“EV traction motors are one of the most crucial components of electric vehicles and utilizing MotorMax high-frequency electrical steels will improve the overall efficiency and performance of the motor,” the iron and steel producer said in a statement.
In addition, growing demand for EVs has fueled the requirement for charging station infrastructure nationwide. Cleveland-Cliffs already makes grain-oriented electrical steels (GOES) that are used in EV charging stations.
CEO COMMENTARY
During an April 25 earnings call, Cliffs Chairman, President and CEO Lourenco Goncalves discussed the Motor-Max grade addition. “We [are] responding to growing demand from existing customers. We have already deployed $30 million into our Zanesville, Ohio, facility to increase our annual production capacity of NOES by another 70,000 tons. We should start operating this new capacity in the third quarter.”
CONCERNED ORGANIZATIONS
SUMMIT SUMMONERS
The signers of the May 22 letter to the president and Cabinet members who lead the Treasury, Labor, Commerce and Energy departments, are as follows.
• Alliance for Automotive Innovation
• American Public Power Association
• Edison Electric Institute
• GridWise Alliance
• International Brotherhood of Electrical Workers Leading Builders of America
• National Association of Home Builders
• National Electrical Manufacturers Association
• National Rural Electric Cooperative Association
A transformer is at work at Limestone Generating Station in Manitoba, Canada.
Goncalves emphasized Cliffs’ advantage in this product category. “The market for these products is huge, but any new entrants to this market will have to first learn the products and then perfect the manufacturing process. Then, the rookie producer will have to qualify these products with each one of the clients.
That’s not our case. We are already in the house with all of these clients.” Goncalves says that producing Motor-Max at Zanesville will free up capacity to produce more GOES at Butler, Pennsylvania, where annual production capacity is about 240,000 tons.
Operator at the Grand Coulee Dam hydroelectric power generating plant, run by the U.S. Bureau of Reclamation.
GOES is used to create laminations and cores for transformers, which are used everywhere in electricity grids. As monies are deployed through federal spending, improvements to the grid and the expansion of charging stations dictate the increased supply of domestically produced GOES, according to Goncalves.
ALL-ELECTRIC VEHICLES
At U.S. Steel, “we are on track for the third-quarter launch of our new non-grain-oriented electrical steel line,” President and CEO David Burritt said during an April 28 call with investors.
Once online, the new line will empower U.S. Steel to play “a pivotal role” in the country’s transition from traditional combustion engines to electric cars. “EVs cannot run without the kind of ultra-thin electrical steel that will soon roll off the line at Big River Steel to the tune of about 200,000 tons a year. The launch of InduX further strengthens our partnership with EV manufacturers.”
Burritt said the new product will also serve the “booming market for green power generation.” He notes that U.S. Steel has 20 years of experience producing electrical steel in Europe and that the European team is assisting the operations leadership at Big River to a successful startup. “We have this great collaboration with the folks [at U.S. Steel Košice] and we have the capability to make this. We’ll be at full run rate as we get through 2024,” Burritt predicted.
Source: Alternative Fuels Data Center, DOE
FLY IN THE OINTMENT
At the end of 2022, the U.S. Department of Energy proposed new energy-efficiency standards for three categories of distribution transformers to improve the resiliency of America’s power grid, lower utility bills and cut domestic carbon-dioxide emissions. DOE’s proposal represents an effort to advance the diversification of transformer core technology, which it says will conserve energy and reduce costs.
Here is what worries electrical steel producers: “Almost all transformers produced under the new standard would feature amorphous steel cores, which are significantly more energy efficient than those made of traditional, grain-oriented electrical steel.” If adopted within DOE’s proposed timeframe, the new rule will come into effect in 2027.
U.S. Secretary of Energy Jennifer M. Granholm said at the time of the proposal that by modernizing energy conservation standards, “we’re ensuring that this critical component of our electricity system operates as efficiently and inexpensively as possible.”
The Department of Energy created a diagram, above, of an electric vehicle’s operating systems, which feature multiple functions requiring electrical steel. A microscopic view, right, of non-grain-oriented electrical steel.
RESPONSES TO RULE PROPOSAL
The eight industrial groups who wrote to the president in May addressed the proposal, saying, “plans to expand domestic steel capacity and manufacturing of critical electrical equipment, such as transformers, are now in flux as DOE contemplates new efficiency standards that would upend the market and manufacturing process.”
On June 1, 47 U.S. senators of both parties wrote to Energy Secretary Granholm to indicate their concern about the proposed rule for switching a key material used in distribution transformers.
The rule “would require all distribution transformers to shift from the industry standard grainoriented electrical steel cores to amorphous steel cores. GOES currently accounts for more than 95 percent of the domestic distribution transformer market and, therefore, [transformer] manufacturers’ production lines are tooled for designs that use GOES.
“A final rule that adopts DOE’s current proposal could meaningfully worsen the supply chain shortage by requiring manufacturers to change production lines to less readily available amorphous steel,” the senators state.
Moving to amorphous steel cores “would require [a] sole domestic supplier to rapidly scale operations from its current market share of less than 5 percent to accommodate the entire distribution transformer market. Such a recalibration of the supply chain will further delay [transformer] manufacturing production timelines—currently estimated to be a minimum of 18 months to two years,” the legislators warn.
It is not yet clear if and when the Energy Department will hold a hearing on the proposal to learn whether a new standard can be met by the domestic steel industry or the manufacturers of distribution transformers.
