Rising steel prices are good for steel mills, but Stelco and some customers may feel differently

Canada’s steel sector may look like it’s in upheaval given the recent layoffs, supply shortages and rising prices, but some executives say their mills are showing green shoots of profitability for the first time in years.

Nowhere is this truer than at Stelco Holdings Inc., a subsidiary of Cleveland Cliffs Inc., which on Monday said its Canadian operations were a positive contributor to its cash flows, even though it cited poor market conditions for laying off hundreds of workers last month at the plant.

“Third quarter was Stelco’s strongest quarter since we acquired the company two years ago,” Lourenco Goncalves, Cleveland Cliffs’ chief executive, said in a press release, but he added there’s an oversupply of cold-rolled and galvanized steel in Canada due to an excess of imports.

That helps explain why the country’s top steel executives travelled to Ottawa earlier this month to urge Prime Minister Mark Carney’s top policy advisers to double-down on protectionist policies that block foreign steel.

Goncalves has long said Canada should adopt blanket tariffs on foreign steel, similar to what the United States has done and the heads of some of Canada’s top steel plants — which buy steel from Cleveland Cliffs and other companies — also say higher steel prices are signs that the current government policies are working.

Carney has implemented progressively tighter import quotas on countries that lack a free trade agreement with Canada, as well as free trade partners, citing a global overcapacity of steel and unfair trade.

After months of import restrictions, however, a complex market picture has emerged. Some steel executives, including many smaller buyers further down the supply chain, say their businesses are feeling the strain of supply shortages and rising prices, which they say will have ripple effects such as inflation and slower growth.

On the other hand, some of the largest steel producers say higher prices are overdue and may be a good thing for the sector.

“Prices are going to go up. There’s no question,” said Barry Zekelman, chief executive of Chicago-headquartered Zekelman Industries Inc., who is based near Windsor, Ont., where he owns a plant. “The problem, and what people need to realize, is steel has been the most deflationary product of anything. You’ve had stagnant prices for 30 years.”

Under current import quotas, free trade partners can ship 75 per cent of the volume they sold in 2024, above which a 50 per cent duty applies. Other countries can only ship 20 per cent of their 2024 volume before a 50 per cent duty applies.

Steel prices have significantly risen since the latest import quotas took effect last December.

Hot-rolled steel — which is used in many construction and transportation infrastructure projects — has increased 45 per cent since April to $1,600 per short ton from roughly $1,100, the highest prices since a supply chain whiplash caused a temporary price spike during the pandemic, according to researcher Fastmarkets Global Ltd.

Zekelman and others say such prices will finally allow domestic mills to operate profitably so they can reinvest in their assets and that if the federal government adopts a firm policy restricting steel imports, it will eventually solve product shortages, primarily by giving domestic producers’ confidence to invest in expansions into products not currently produced here.

“It’s very hard to perfectly balance the scales of trade at every moment,” he said. “The goal here is to stop the wild swings.”

There are, however, other factors affecting steel prices.

Steel production significantly dropped in recent months at Sault Ste. Marie, Ont.-based Algoma Steel Inc., the only non-foreign-controlled steel mill, as it transitioned away from a gas-powered blast furnace to an electric arc furnace that is expected to lower its carbon emissions by 70 per cent.

Algoma idled its plant this summer because of an unplanned outage at its electricity generation facility. Earlier this month, it said its third-quarter steel sales likely dropped to 145,000 tonnes, down 68.8 per cent from the previous three-year average of 464,527 tonnes.

Algoma did not respond to requests for comment.

Another factor has been Cleveland Cliffs shipping steel slabs to the U.S. earlier this year, which some steel plant execs said exacerbated shortages of hot-rolled steel in Canada. The company last week confirmed to the Globe and Mail that it had been shipping 60,000 tons per month to its plants in the U.S.

Cleveland Cliffs declined further comment, but it previously said it is shutting down its cold-rolled steel operations in Canada because of a lack of demand.

Goncalves said on an earnings call in July that unfairly priced imports were destroying the market for cold-rolled steel and he reiterated on Oct. 19 his call for more protection, calling that market segment “oversupplied.”

But Ron Wells, president of United Steelworkers local 1005, which represents Stelco’s laid-off workers in Hamilton, said the company’s Canadian operations have been profitable this year.

“We have a profit-sharing component in our basic agreement,” he said. “If we get to a certain threshold, it pays. The last three quarters, we’ve got small profit-sharing cheques.”

Wells said shutting the cold-rolled operations down is a “manufactured crisis” because the layoffs give Cleveland Cliffs leverage as the union is set to bargain a new agreement next July.

Demand for cold-rolled orders from the plant is still high, said Brendan Sweeney, a spokesman for the Pacific Manufacturing Association of Canada, a trade group representing Honda Motor Co. and Toyota Motor Co.

“We’ve heard that it’s about lower demand,” he said. “That’s not us. Our demand is still high. We’re still producing.”

One Stelco worker said one of the last production runs was for Honda.

Automakers may be able to find alternative steel sources, but smaller companies may not have the resources to do so.

Armando Infusino, materials manager of Aurora, Ont.-based Claymore Metals Inc., which produces steel studs for the construction industry, said prices for cold-rolled steel have been rising for months, rose again on Monday, but it’s still difficult to procure as much steel as needed.

“The mills are not allocating what you need,” he said. “If you used to buy 1,000 tonnes, they’re giving you a fraction of what you need.”

That’s creating a challenging environment for his company, Infusino said. Some people are questioning whether it makes more sense to import a finished steel product, which would not be subject to a tariff, rather than manufacture it here.

“(Cleveland Cliffs) is steering the Canadian public wrong,” he said. “They’re using words and misinformation about why they shut down. People have been trying to get steel from six months ago; the demand was there and they’re saying they can’t be competitive. But pricing is at a record high? It doesn’t add up.”

One steel distributor, who requested anonymity to preserve his relationships with suppliers, said the shortages and price increases are increasingly leading customers to ask whether it makes sense to pay the tariffs and any fines to import steel products from non-market countries such as China.

“There is a worldwide overcapacity of steel,” he said. “There’s no shortage in the world. People have started looking into maybe we should buy it in China and pay all the fines and tariffs. It’s just a mess.”

Still, he said his company was managing alright.

“It’s not crippling, but it’s certainly got challenges,” he said. “I’m just waiting for some mega project to get delayed because they can’t get the steel.”