Industrial and commercial motor
suppliers are at the helm of a major problem. Historically, vendors like ABB,
WEG, Siemens, and Nidec have had minimal difficulty securing supply of key raw
materials used in the manufacturing of their motors. Of course, there have been
many supply disruptions throughout the market’s life, but very few have evolved
into longer-term issues. However, we are beginning to observe one supply
disruption that will likely challenge motor vendors’ ability to produce for
years to come.
Electric steel is used heavily in the manufacturing of electric motors. The
material is key to producing the electromagnetic field used to turn the rotor.
Without the electromagnetic properties associated with this iron alloy, the
performance of electric motors would be substantially compromised.
Historically, motors used in commercial and industrial applications have
represented a major customer base for electric steel suppliers, and motor
vendors have resultingly had little difficultly ensuring prioritized supply
lines. However, the share of business held by commercial and industrial
electric motor vendors is being threatened by the automotive sector in the wake
of electric vehicles.
As electric vehicle production continues to grow, so does the associated demand
for the electric steel used in the motors to power them. Resultingly, the
bargaining power between commercial/industrial electric motor vendors and their
steel suppliers is becoming increasingly undermined. As this trend progresses,
it will impact vendors’ ability to secure the electric steel necessary for
production, resulting in longer lead times, and higher prices for customers.
The state of this problem today
The
process which takes place after crude steel is formed dictates the kinds of
things the material can be used for. One of these processes is referred to as
“cold-rolling”, which produces what is known as “cold-rolled steel”–the type
used in electric steel. Cold-rolled steel makes up a relatively small portion
of overall steel demand and the process is notoriously capital intensive.
Resultingly, increases in production capacity are slow.
Over the last 1-2 years we’ve seen the price of cold-rolled steel climb to
historic levels. The federal reserve tracks the price of cold rolled steel
globally. Shown below, the price of the commodity rose to more than 400% of its
price in January of 2016.