Surging steel prices protect local steelmakers from Trump
Dire predictions of a Hamilton slowdown and massive layoffs from the 25 per cent U.S. tariff have failed to materialize
STEELMAKERS are having a bonanza of a year because of soaring steel prices that have more than offset the negative effects of U.S President Donald Trump’s 25 per cent tariff, analysts say.
“Canadian producers are swimming in money at least for now,” says University of Toronto steel expert Peter Warrian.
“It is counter-intuitive what happened,” he said.
“We were worried there would be layoffs because Canadian steelmakers were going to be priced out of the market with having to add 25 per cent on top of their prices. That would lead to fewer orders and people being laid off.
“But instead the price of steel has gone through the ceiling.”
The jump to nearly $1,000 a metric tonne from $700 in January means Canadian steelmakers — including Stelco and ArcelorMittal Dofasco — can pay the tariff and still make a tidy profit on sales in the U.S., Warrian said.
Although, what’s typically happening, he said, is American buyers and Canadian sellers are sharing the 25
per cent charge placed on steel by U.S. authorities.
Meanwhile, with Canadian prices running slightly behind U.S. ones, Canadian steelmakers are making large profits on steel sold domestically.
The development is in stark contrast to expectations of a slowdown and layoffs after the 25 per cent steel and 10 per cent aluminum tariffs were imposed June 1 because of so-called “national security interests.”
The tariffs have led to various displays of support in Hamilton, including appearances by Foreign Affairs Minister Chrystia Freeland in a Stelco steel mill in June and Finance Minister Bill Morneau in an ArcelorMittal Dofasco steel mill in August.
The federal government put in place a series of retaliatory tariffs and up to $2-billion in financial aid to Canadian companies affected by recent U.S. tariffs on their exports.
On June 26, Sean Donnelly, president and chief executive officer of ArcelorMittal Dofasco, warned a Commons standing committee that “left unmitigated for a prolonged period of time,” the combined impact of the tariffs and diverted offshore imports of steel, “could result in reduced production, potential shutdown of operating lines, impacting over 1,000 direct jobs and over 4,000 indirect jobs in Ontario and Quebec with significant implications for the ROI (return on investment) on current projects and impairment of future facilities investments.”
“ArcelorMittal Dofasco was one of the most financially successful operations in North America. That is no longer the case,” Donnelly said, noting the company was reconsidering $750 million in future investments.”
Then on Sept. 7, more than 250 people packed city council chambers for a Hamilton Steel Summit to hear political leaders, industry experts, steelmaker representatives and union leaders discuss tariffs and other woes faced by the city’s steel sector.
But the tariffs, at least in steel, are playing out much differently than expected.
Warrian said market uncertainty, brought about by Trump first threatening and then imposing tariffs is a big reason for the price rise.
Neither of Hamilton’s two major steelmakers, ArcelorMittal Dofasco or Stelco, would comment.
But industry spokesperson Joe Galimberti, president of the Canadian Steel Producers Association, said high steel prices are only one consideration when it comes to the bottom line for steelmakers.
He noted the prices could fall quickly, and there are all kinds of other negative effects from the tariffs that are hard to track.
“It is a disruption on a trade that has existed for a generation. I don’t think it would be responsible to allow ourselves the belief that we understand its every effect four months into its existence,” he said.
Galimberti says even in the face of rising prices, the “25 per cent tariff going into the United States is a significant barrier to competition.”
It’s making it difficult to sell in the U.S. and “when you are not selling the steel, the price at which you are not selling it is sort of irrelevant.”
Not all steelmakers are being affected the same way. Some may be doing well but others are struggling, he said.
McMaster University business professor Marvin Ryder said the price spike is because “there is pent up demand. People are building again and they are buying steel to do that. When demand goes up and supply stays constant, the price goes up.”
A lot of buyers surged to purchase steel, he said, “because they were afraid that Trump would throw another monkey wrench into the system.”
SteelBenchmarker, an online service that monitors U.S. prices, says hotrolled steel is selling for $968 a metric tonne compared to $700 in January. Cold-rolled steel (used primarily in the auto sector) is $1,057 now compared to $840 in January.
Warrian said, “There is no doubt that the so-called ‘Trump Bump’ (rise in corporate profits) has been generating a lot of demand and ... if you constrain exports, prices are going to rise and that is indeed what has been happening.”
Warrian believes eventually a new NAFTA deal will be signed and the tariffs withdrawn.
But he believes the U.S. will press for quotas that will limit sales for Canadian steelmakers into the U.S.
They won’t have equal footing with American sellers and there will be strict limits on how much steel they can sell.