The demand for electrical steel in the US is expected to outpace supply, as there is a shortage of non-grain-oriented electrical steels (NGOES) needed in the batteries of electric vehicles (EVs). This shortage is due to insufficient domestic production of these value-added steels to meet future demand. Cleveland-Cliffs, the only supplier of automotive-quality electrical steels in North America, invested $30 million in its Zanesville, Ohio plant to contribute 70,000 short tons to the steelmaker's non-oriented electrical steels (NOES) capacity by the end of 2023.
US Steel, another major steelmaker, is set to be the second US supplier of NOES. The company's upcoming NOES line, branded "InduX," at Big River Steel in Osceola, Arkansas, is scheduled to achieve full production of 200,000 short tons per year in 2024.
The rise in demand for electrical steel is driven by an uptick in demand for EVs, which is expected to drive exponential growth in demand and production for EVs for the foreseeable future. The material will trade at a premium, and consumers would have to pay it if they wanted access to it. The size of the premium and how long it will remain in place depends on the development of demand growth and how quickly domestic industries can add additional capacities.
To address some of the supply constraints of electrical steel, the domestic steel industry should make investments in the production of material. There needs to be further investment in these products to produce them in North America. This is a product line that is highly valued, where supply is somewhat constrained compared to demand. It will trade at a premium, and there is a significant opportunity for growth.
Klöckner & Co acquired National Material of Mexico (NMM), a service center and materials supplier serving automotive end markets in North America, on August 1, a move Ganem described as a "higher value-added play." NMM has a more of a service center model, as opposed to a purely distribution model, where you're just buying and selling, as opposed to servicing in managing complex supply chains.
Collectively, KMC and NMM will have a presence in the US and Mexico spanning 56 sites. In Mexico, there have been tremendous investments from the EV side, and now being a major supplier in the automotive sector, KMC can contribute and be a key supply chain partner to help drive the electrification of the North American marketplace.