Despite the market price gyrations of the M3 spot GOES market, the index rose by ten points in December, five trends underpin much of the dynamic impacting global GOES markets.
Those trends appear as follows:
Continued market tightness for non-commodity grades such as MOH or HI-B materials: These materials, not currently produced in the US remain in high demand both in Europe as well as the US due to more stringent transformer efficiency standards. With no domestic production of such materials, global transformer and power equipment producers will continue with their strategies of working and securing long-term agreements (LTA’s) with key overseas suppliers, particularly in Japan. In addition, they will continue to evaluate near-country sourcing options (Canada and Mexico) to bring in stacked cores where NAFTA sources can also easily access the non-commodity grades. In addition, because the [primarily] Japanese mills need to run thinner gauges to meet customer demand, their annual production quantities will necessarily decline, creating additional tightness.
Standard grades, on the other hand, will see flat to falling prices until “fundamentals” take over. In other words, until/unless the Chinese, as did ATI, reduce capacity — too much supply is chasing too little demand. More capacity will need to come offline to better match demand. The impact of ATI’s recent announcement that it has idled production of GOES, may help set a floor for US domestic pricing.
We expect to see continued industry consolidation among power transformer equipment manufacturers. The acquisition this past month of Kentucky Association by ERMCO will continue to help shore up buying power. In Europe we expect the Alstom/GE tie-up to provide substantial “leveraged” purchasing power.
International trade issues will continue to dominate the global GOES marketplace. Not only will this market continue to see the ramifications of anti-dumping initiatives and decisions around the globe, but China’s ascendancy to the World Trade Organization as a full-fledged market economy participant (if approved by WTO member countries) will have profound ramifications on GOES cases, in particular, and many other metals including: steel (flat-rolled and pipe and tube), aluminum, and copper. In short, China perceives it will obtain full-fledged market economy status beginning in December of this year. By obtaining that status, countries arguing anti-dumping against China will not be able to compare China’s price with a similar or like country’s export price, but instead will have to determine if the export price of a product is below the domestic price. And as we can attest, based on our careful watch of Chinese metal prices, the domestic price is nearly always lower than the export price. In other words, it will be difficult for countries bringing anti-dumping claims against China to prove anti-dumping against this standard. One additional point on this issue: each trading block (and/or country) needs to decide the question of China being a full-fledged market economy independently. We could see some very divergent responses to the question of China’s ascendancy by country.
Health of the global economy: Though GOES markets appear somewhat protected from the booms and busts of the economic cycle, energy initiatives are subject to federal projects and expenditures, new home and commercial construction etc. China’s slowdown and the health of the overall global economy will continue to impact all metals markets though to a lesser extent, GOES markets.