Terence Corcoran: Maybe Carney really wants to take over Stelco

We are three weeks into the great legal, economic and political battle between Mark Carney’s Industry Minister, Mélanie Joly, and Lourenco Goncalves, CEO of Cleveland-Cliffs Inc., the U.S. steel company that owns Stelco, the Hamilton, Ont.-based Canadian steelmaker. But it is still impossible to make sense of it all.

As companies, both seem to be going gangbusters, at least according to Cleveland-Cliffs’ announcement Monday that sales and profits for the third quarter are coming in strong, including at Stelco, which apparently is doing great despite the fact that it announced 500 layoffs in Hamilton three weeks ago. “Third quarter was Stelco’s strongest quarter since we acquired the company two years ago,“ said Goncalves. “The Canadian hot-rolled market has improved substantially, turning Stelco into a positive contributor to EBITDA in Q3.” Sales of galvanized steel from Hamilton are another story, he added.

So what’s going on? The major issue: Does Cleveland-Cliffs have the right to lay off 500 Stelco workers making steel in Hamilton? After 21 days there is still no solid factual foundation to determine who is right and who is wrong, who is playing games and who is not. Or maybe both are.

The legal facts are buried in a contract, signed by Ottawa and Cleveland-Cliffs in October 2024, that allowed the U.S. company to pay $3.4 billion to conclude a foreign takeover of Stelco under the Investment Canada Act. The details and wording of the contract remain secret, leaving both sides free to make contradictory and accusatory claims.

According to Joly, backed rhetorically by Prime Minister Carney, Cleveland-Cliffs has broken the terms of the takeover agreement. “It is the government’s position,” she said last week, that by laying off 500 workers Stelco has “breached its commitments” and the government will use “the full force of the law” to punish Stelco and its U.S. parent if Goncalves doesn’t reverse the layoffs decision.

According to Joly, when a company breaks a contract agreement, the government can, under Section 40 of the Investment Canada Act, force financial penalties on the company or force it to sell its Canadian assets. As Carney put it: “We intend to use all powers that we have and pursue them to the full extent of the law.”

In law, Ottawa does appear to have the power to force the sale of Stelco, but only under certain court-determined conditions. The investment act states that if the company is found to have failed to live up to a contract agreement, the court has the power to direct “the non-Canadian to divest themselves of control of the Canadian business, or to divest themselves of their investment in the entity, on any terms and conditions that the court considers just and reasonable.”

But did Cleveland-Cliffs actually breach the original agreement? It is impossible to know. The terms and exact wording of the steel takeover deal apparently cannot be reviewed by anyone (pending a leak, or course).

According to Cleveland-Cliffs’ CEO, Joly and Carney are misrepresenting the terms of the five-year contract. In an interview with CBC last week, Goncalves stated that “There is no provision in the contract that I have to keep employment at a certain level every single day of the five years. If that was an imposition of the Canadian government, I would not have accepted.” The CEO has said Ottawa’s threats amount to “bullying and harassment,“ and told BNN-Bloomberg this week that Joly is treating his company “like a pariah.” He said Stelco is doing well and the employees under notice will be returned to continue to produce galvanized steel at the Hamilton plant.

For that to happen, however, Ottawa will need to act to protect the Canadian steel industry via two possible measures, according to Goncalves. The first would be to take strong action to protect the galvanized steel produced in Hamilton against imported galvanized steel that is being dumped into Canada from other countries. “Canadians workers are the victims of this dumping,” Goncalves said. He said Carney, Joly and other cabinet officials, along with Privy Council Clerk Michael Sabia, had previously been advised that Stelco cannot continue operating in a market that allows dumped imports.

Another option would be for Canada to end the steel trade war with the U.S. by striking a deal that would open the Canada-U.S. border to steel trade by removing or reducing tariffs, which now run to 50 per cent.

Ending Canada-U.S. steel tariffs would be the optimal solution, but neither Carney nor Donald Trump appear ready for such a move. Trump remains totally unpredictable, although Goncalves’ seemingly close relationship with the president might make U.S. tariff reductions on Canadian steel possible.

For Carney, striking any kind of a free-trade deal with the United States hegemony would clash with his overall plan to shift away from the U.S. as a major trading partner. Goncalves favours a “Fortress North America” trade relationship with Canada, while Carney is aiming for a Canada linked to the rest of the world via a thin band of collaboration with scores of other nations, including China.

One of the main applications of galvanized steel produced by Stelco in Hamilton is automobile manufacturing. A key to Carney’s industrial strategies is to help China set up electric vehicle manufacturing facilities in Canada. Maybe Ottawa’s objective is to orchestrate a government takeover of Stelco, release it from U.S. trade connections and establish a new “Fortress Canada” industrial sector protected against U.S. trade.