Summer to Test Power Grids, Hunt for Transformers Continues

Jennifer Kary | Posted on May 17, 2023 |

The Renewables MMI (Monthly Metals Index) dropped again this month, this time by 6.01%. Month-over-month, every part of the index fell except for U.S. plate steel. Somewhat weaker steel demand impacted Korean and Chinese steel plate prices, causing them to drop. Meanwhile, cobalt and silicon continued to fall due to oversupply. That said, the long-term outlook for cobalt remains bullish due to the rising demand for battery metals. Lithium prices also managed to flatten out over the past week. Finally, electrical steel remains in high demand, but prices remained within a sideways range.

Indeed, with summer fast approaching, ongoing power grid problems continue to receive attention. After all, there are not enough transformers and power grids to transfer renewable energy from solar and wind fields to businesses and homes.

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In recent months, lithium prices managed to flatten more than in the past six months. However, experts remain torn regarding global lithium supply outlooks. While the world currently possesses a robust amount of processed lithium supplies, the long-term price outlook could wind up more bullish than bearish. Demand is projected to rise for renewable energy and EV batteries and with ut, demand for lithium-ion batteries remains on the upswing.

Currently, the International Energy Agency (IEA) predicts that there may be a lithium shortage by 2025. According to Credit Suisse, demand may triple between 2020 and 2025, placing strain on the global lithium supply. The data from both the anticipated supply vs. anticipated demand (until 2030) shows that the absence of previous investment in new supply could result in a structural deficit throughout the decade.

The leading lithium producer in 2021 was Australia, followed by Chile, China, and Argentina. And by 2025, analysts anticipate that the world's lithium output will have nearly doubled. This will certainly help meet increasing demand. However, analysts also expect the demand for energy storage systems and electric cars to grow exponentially. This could eventually result in ongoing supply problems.

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The GOES MMI traded again within a tight sideways range month-over-month. Ultimately, the index only inched down a slight 0.23%.

Supply chain shortages remain a persistent problem in the GOES market. MetalMiner explains how to get around supply chain issues in the free article The 5 Biggest Cost-Saving Sourcing Tactics. These supply chain shortages, specifically in terms of transformer shortages, have been a persistant problem for the past year. Indeed, current reports indicate lead times for new transformers to be as long as 12 months, depending on the company and source.

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For utility companies, the present transformer shortage makes it more difficult to maintain consistent electricity as the U.S. enters both hurricane season and the hot summer months. In fact, researchers predict that this summer will have record-breaking consumer electricity use. This could place massive strain on electricity grids and make it more likely that grid systems will get knocked out by severe weather.

Reuters recently reported that extreme weather conditions like tornadoes, wildfires, hurricanes and droughts are becoming more frequent. Such occurrences raise the risk of grid damage and protracted power disruptions significantly.

Twenty percent of utility companies have had to postpone electrical grid projects due to the scarcity of transformers and electrical steel. Additionally, with replacement equipment inventories running low, the lack of distribution system transformers could cause some grid projects to be abandoned completely. Despite the fact that the scarcity has been ongoing for more than a year, experts believe it will continue for some time.

Unfortunately, it is getting more difficult for utilities companies to find transformers of all kinds. This is forcing many of them to buy units from other countries despite the higher costs, long lead times, and increased wait periods.

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Filed under: Commodities, Ferrous Metals, Global Trade, Green, Metal Prices, Metal Pricing, Non-ferrous Metals, Supply & Demand

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