Key Takeaways
- The Canadian government has implemented protectionist measures to restrict imports of foreign-made steel and support domestic steel producers.
- The measures include a tariff-rate-quota (TRQ) system, which sets an import quota above which steel shipments face a 50-per-cent tariff.
- The TRQs are intended to block out around 2.3 million tonnes of "offshore" steel and create a new domestic equilibrium for the highly disrupted market.
- Canadian steel producers, such as Algoma Steel Group Inc. and ArcelorMittal Dofasco, have seen their business models upended by U.S. President Donald Trump’s 50-per-cent steel tariff.
- Steel users in Western Canada, particularly in British Columbia, are warning of shortages and rising costs for construction materials and manufacturing inputs if they’re forced to buy from Eastern mills rather than bringing in product by ship at world prices.
Introduction to the Issue
The Canadian steel industry is facing significant challenges due to the U.S. steel tariff imposed by President Donald Trump. In response, the Canadian government has taken a series of escalating steps to shore up demand for the country’s steel mills by restricting imports of foreign-made metal. These protectionist measures have been lauded by Canadian steel producers, who have seen their business models upended by the U.S. tariff. However, the measures are also drawing criticism from steel users, particularly in Western Canada, who warn of shortages and rising costs for construction materials and manufacturing inputs.
The Impact on Canadian Steel Producers
The U.S. steel tariff has had a devastating impact on Canadian steel producers, with exports to the U.S. down around 30 per cent by volume compared to last year. The price of steel in Canada has also plummeted, with Algoma executives saying that their Canadian sales prices were down 40 per cent. The Canadian government’s TRQs have opened up the potential for Canadian steel producers to sell into Western Canada, which has typically been served by imports from Asia and the Pacific Northwest of the U.S. Catherine Cobden, president and CEO of the Canadian Steel Producers Association, believes that the TRQs will help to create a new domestic equilibrium for the highly disrupted market.
The Concerns of Steel Users in Western Canada
Steel users in Western Canada, particularly in British Columbia, are warning of shortages and rising costs for construction materials and manufacturing inputs if they’re forced to buy from Eastern mills rather than bringing in product by ship at world prices. Ron McNeil, chief executive officer of LMS Reinforcing Steel Group, one of B.C.’s largest rebar suppliers, says that he can’t put his projects at risk by relying on Eastern mills, which have never proven that they can supply Western Canada. Ravi Kahlon, B.C.’s Minister of Jobs and Economic Growth, is concerned that tightening TRQs before logistical and supply issues can be sorted out will simply drive up costs for B.C. builders and manufacturers and lead to shortages and project delays.
The Transportation Costs and Logistical Challenges
One of the main challenges facing steel producers and users in Western Canada is the high cost of transportation. It costs around $50 a tonne to bring steel across the Pacific and in through the Port of Vancouver, compared to $150 to $200 a tonne to bring steel from Ontario to Vancouver by rail. Ottawa now plans to subsidize the cost of shipping steel and lumber by rail, starting in the spring, in an effort to reduce interprovincial freight rates by 50 per cent. However, this may not be enough to address the logistical challenges facing steel producers and users in Western Canada.
The Global Steel Market and the Impact of the TRQs
The global steel market is facing a significant surplus, with excess capacity in countries such as China, India, and Southeast Asia. This has led to a flood of cheap steel imports into Canada, which has put pressure on domestic steel producers. The TRQs are intended to block out around 2.3 million tonnes of "offshore" steel, but they have also been criticized for distorting market pricing and sowing chaos among importers. Jim Ritchie, CEO of Vancouver-based Cascadia Metals Ltd., believes that the TRQs are not a good solution and that a quota system is not the answer. Barry Zekelman, the CEO of Zekelman Industries, agrees that the quota system is not a good solution, but believes that a Buy Canadian policy is necessary to protect domestic steel producers.
The Political Context and the Role of the U.S.
The Canadian government’s moves on steel are seen by many as an attempt to align with the White House in the hope of getting relief from U.S. steel tariffs. The Trump administration has long argued that cheap Asian steel is being shipped into the U.S. through Canada and Mexico. Before trade talks were called off in October, Washington and Ottawa were discussing the possibility of a TRQ system, in which Canadian steel shipments to the U.S. would face a 10-per-cent to 15-per-cent tariff inside a quota based on historical volumes, and a higher tariff above the quota. This would be instead of the flat 50-per-cent tariff currently in place. However, steel buyers in Western Canada remain wary of getting left out in the cold, and believe that the Canadian government is prioritizing the interests of Eastern steel producers over those of Western users.