The Paper-Thin Steel Needed to Power Electric Cars Is in Short Supply

U.S. Steel and Cleveland-Cliffs jockey with foreign rivals to supply the crucial material for EV motors

Large U.S. steelmakers are ramping up production of a hard-to-make, paper-thin steel to capture a fast-growing market for a material critical to powering electric vehicles.

Cleveland-Cliffs Inc. and U.S. Steel Corp. are jockeying with a small group of foreign-based steelmakers that produce electrical steel, used to convert electricity into mechanical power for motors in products that include washing machines, air conditioners, power tools and more recently, electric vehicles.

Such electrical steel, which accounts for about 1% of all the steel produced annually in the world, already is in short supply for electric vehicles, executives said. Companies expect demand to accelerate faster than production as EV volumes expand in the coming years.

“It’s in limited supply and with very long lead times. Sometimes 50 or 52 weeks,” said Hale Foote, owner of Scandic Springs Inc., a San Leandro, Calif., company that uses high-grade electrical steel to make parts for scientific measurement devices.

Supply chains for making battery-powered electric vehicles have become a flashpoint for the U.S. auto industry as production pivots away from internal-combustion engines.

Raw materials used to make batteries, such as cobalt, nickel and lithium, mostly have come from overseas along with anodes, cathodes and other battery components. The Biden administration is spending $2.8 billion as part of 2021’s federal infrastructure legislation to help expand domestic manufacturing of batteries for electric vehicles and the electrical grid.

More than 80% of the electrical steel produced comes from China, Japan and South Korea, all countries that are subject to U.S. tariffs or quotas on steel imports, industry analysts said.

Electrical steel, which contains silicon, is stamped into precisely shaped pieces that are stacked on top of each other like a deck of cards to create thick laminates that make the cores of rotating electric motors. The slow, exacting process required to melt, cast and roll electrical steel, which can be less than a quarter of a millimeter thick for the highest grade, holds down production volumes and dissuades many steel companies from making it, executives said.

“It takes intense focus. You have to have absolute consistency or you scrap the material,” said David Stickler, who led the investment group that built Big River Steel in Osceola, Ark., and then sold the mill to U.S. Steel in 2021. Mr. Stickler said he envisioned electrical steel being a core product at Big River when he started planning the mill nearly a decade ago.

High-grade electrical steel used in electric-car motors sells for $2,400 to $2,800 a ton, compared with about $1,100 for commodity-type hot-rolled sheet steel, according to analysts. The electrical steel core of an auto motor costs $200 to $400, analysts said, depending on the performance characteristics of the motor and the size of the vehicle. The higher the quality of the electrical steel in the motor, the more efficient the motor will be at moving the vehicle, which extends the mileage range of a vehicle’s battery.

Cleveland-Cliffs, the largest supplier of steel to the U.S. automotive industry, produces electrical steel at a plant in Butler, Pa. Now, the Cleveland-based company is spending more than $30 million to restart an idle electrical-steel rolling line at its Zanesville, Ohio, mill that will produce additional electrical steel for auto motors.

The company acquired its electrical-steel business in 2020 when it bought Ohio-based AK Steel Holdings Corp., whose predecessor company pioneered the process for making electrical steel in the early 20th century.

“We’re going to go through shortages,” said Lourenco Goncalves, chief executive of Cleveland-Cliffs. “Shortages generate higher prices.”

U.S. Steel said it intends to start producing electrical steel later this year at its Big River mill. The company said it spent about $450 million to build the electrical-steel production line after acquiring the mill, and projects it will be able to make about 200,000 tons of electrical steel annually.

“We have a customer base that is very eager for us to get into this product,” said Rob Kopf, U.S. Steel’s vice president of sales and marketing.

Supplies of the highest-quality electrical steel needed for automotive motors are expected to become particularly tight.

Metals Technology Consulting Inc. forecasts global demand for high-grade electrical steel to reach 2.8 million metric tons by 2027, about 300,000 metric tons more than the global supply, unless more production capacity for high-grade electrical steel is added. The Illinois-based firm expects demand to outpace supply by about one million metric tons a year by the end of the decade without a significant increase in the supply.

In North America, which already relies on imports of electrical steel, demand for high-grade electrical steel is expected to reach nearly 780,000 tons by the end of the decade.

Metals Technology forecasts the U.S. supply of high-grade electrical steel at roughly 116,000 tons by 2024. Industry analysts expect supplies of lower-grade electrical steel for motors in appliances and other consumer products to remain adequate in the coming years, because that steel is easier to make than the steel cores for higher-performance motors in electric vehicles.

Steel-industry executives said that creating more domestic capacity to make electrical steel for vehicles will likely take years, as steel companies acquire equipment and become proficient at the exacting production process.

“You can’t just buy the equipment and start making electrical steel. Those who’ve made the investment will have an advantage for the next five to 10 years,” Mr. Stickler said.

Cleveland-Cliffs said it expects to produce about 300,000 tons of electrical steel annually between its two mills, with most of that output going for electrical transformers. Mr. Goncalves said he expects Cleveland-Cliffs’s initial production capacity for automotive electrical steel to be about 50,000 tons annually.

“I’m not going to make a wild bet on more until I have certainty about the pace of electrification,” he said.