Since 2020, lead times for distribution transformers have increased from several months to well over a year, and prices have gone up by as much as 400% or more. Construction industry professionals that haven't been living under a rock for the last few years are well aware of the severe and ongoing transformer shortage, but few can put a finger on what's driving it.
One of the largest contributing factors to the current crisis is a shortage of grain-oriented electrical steel (GOES), a critical component in transformer cores and laminations. Just one producer of electrical steel remains in the U.S., and that company, Cleveland-Cliffs Inc., is unable to meet high domestic demand at prices that are comparable to imports. Because the two mills that produce GOES are unprofitable, Cleveland-Cliffs is considering shutting them down. This would leave the country entirely dependent on imported electrical steel, and the situation only becomes more complex from here.
In 2019, the United States imposed a 25% tariff on steel imports with exemptions for Canada and Mexico. This move was expected to spur new domestic production, but these changes never materialized. Instead, U.S. companies found a way to circumvent the tariffs by importing GOES into Mexico and Canada, using it to manufacture transformer components, then shipping these parts to the U.S. tariff-free. As a result American steel manufacturers have become even more reluctant to invest in electrical steel production while loopholes still remain.
Cleveland-Cliffs and some lawmakers are currently pushing to impose import restrictions on transformer components that contain GOES and other electrical steel to help boost domestic production. Transformer manufacturers, however, are against more restrictions, citing higher costs, limited supplies, and fears of monopoly in the sector. NEMA, which represents more than two dozen transformer manufacturers, has long opposed additional tariffs and actively lobbies against them.
In June 2022, the U.S. government invoked the Defense Production Act (DPA) to allow an increase in domestic production of transformers. The Department of Energy is now in the process of formulating an effective production program under DPA Title III.