The ArcelorMittal Dofasco steel plant in Hamilton is one of the Canadian steelmakers that's likely to be affected by U.S. tariffs on Canadian imports.Carlos Osorio/Reuters
The Canadian steel industry has avoided for now what it called a “doomsday scenario.”
After conversations with U.S. President Donald Trump on Tuesday, Prime Minister Justin Trudeau said that U.S. tariffs on Canadian imports will be averted for at least 30 days. Mr. Trudeau said on X that Canada has committed to tougher border measures in an attempt to assuage Mr. Trump. As a major part of his justification for tariffs on Canada, Mr. Trump alleged that Canada wasn’t doing enough to prevent fentanyl from illegally entering the United States.
The Canadian steel sector, alongside much of Canada’s economy, had been girding itself for a 25-per-cent import tariff into the U.S., which was previously to take effect on Tuesday.
The industry is almost exclusively dependent on the U.S. for its exports, and it has few options to sell the metal to other markets. The U.S. automotive, energy and construction industries are the chief destinations for Canadian steel exports.
“We’re looking at a doomsday scenario,” François Desmarais, vice-president, trade and industry affairs with the Canadian Steel Producers Association, said in an interview on Monday, before the reprieve was announced.
If Mr. Trump follows through on implementing the tariffs, they will result in a vicious circle of less demand from U.S. customers and fewer imports for Canadian steelmakers from the U.S. That’s because a lot of the inputs that Canadian steelmakers use, such as iron ore and coke, come from the U.S. market.
“Because we’re selling less, we’re going to probably lay off a lot of employees because a blast furnace cannot be switched on and off as we wish,” he said.
The steel industry directly employs 23,000 people in Canada.
A global glut caused mainly by Chinese overproduction means there is little demand from other countries for Canadian steel. In addition, the extremely high price of shipping the metal owing to its heavy weight makes the U.S. the logical destination, with 99 per cent of exports going there. U.S. carmakers and parts makers buy steel directly from the Canadian producers and they mould it into whatever their specific needs are for automotive.
The major steelmakers in Canada are Sault Ste. Marie, Ont.-based Algoma Steel; U.S. company Cleveland-Cliffs Inc., owner of Stelco; and Luxembourg-based ArcelorMittal, owner of Dofasco. All have significant steel operations in Ontario.
The United States produces about 80 million tonnes of steel a year, about five times more than Canada, but it still relies on imports for about 10 million tonnes of its needs. Canada is the biggest source of those imports, followed by Mexico, which is also facing a U.S. trade war.
Mr. Trump during his first term imposed 25-per-cent tariffs on imports of Canadian steel in 2018 and kept them in place for nearly a year. In the immediate aftermath, steel exports to the U.S. fell by 38 per cent.
But this time is different, Mr. Desmarais said, because all of Canada’s trade could eventually get hit with the U.S. tariffs, so the added knock-on impact on the industry is potentially a lot worse.
“This is unprecedented. We have no perspective or numbers on the magnitude of this.”
Canada’s aluminum sector is better placed than the steel industry to withstand any Trump tariffs because it would be able to pass on some price increases to some customers, and shift a significant amount of its business to other markets over time, Jean Simard, president of the Aluminium Association of Canada, said in an interview.
Canada produces about 3.2 million tonnes of primary metal a year, with 90 per cent of its output going to the U.S. The biggest producers are Anglo Australian miner Rio Tinto PLC, Pittsburgh-based Alcoa Corp. and privately held Quebec-based Aluminerie Alouette.
The U.S. produces 670,000 tonnes of aluminum a year, but consumes five million tonnes, about 7½ times more. More than half of U.S. aluminum imports come from Canada, with the automotive sector as the biggest customer. The body of Ford’s F-150 pickup, the biggest-selling vehicle in the U.S., is made from military-grade Canadian aluminum.
About one-third of Canadian aluminum sold to the U.S. is a value-added bespoke product covered by contracts stipulating the end customer would absorb the cost of any tariffs, Mr. Simard said. The rest is aluminum ingots, a commodity product that can easily be sold to other markets, such as Europe.
“It’s like water. It seeks the path of least resistance to get the highest return,” Mr. Simard said.
The aluminum industry employs 9,500 people in Canada, but Mr. Simard says he wouldn’t expect any layoffs in the event of tariffs.
Any pain would be felt “very early on, very sharply in the U.S. market.”