Canada is going to be the 51st state

Happy new year everyone. Hope the holidays were restful and relaxing. We sure do know that the few weeks into January have been turbulent to say the least in the North American steel markets. Please take a minute to read some events, rumors, and facts that we believe can shape the industry in the short-term future as we put the first month of the new year behind us.

Demand

Demand side dynamics are softer looking towards 2025. With a significant drop in new residential building starts (whether high-rise or low-rise) in Ontario and Quebec, this has procurement managers sheepish when thinking about inventory levels into mid-year 2025.

However, there is some positive light toward infrastructure projects set to start in 2025: hospitals, ports, and processing facilities for the Canadian eastern markets.

The devastation of the LA fires has forced Californian distribution towards making import commitments for Q2 delivery.Stainless steel distributors send out price increases stating currency costs.

Copper manufacturer Great Lakes sent out a market-wide memo reducing discounts blaming USDCAD.

Tariffs will keep US unemployment low, however they will keep inflation high.

Supply

Stock levels were well managed in 24Q3 and 24Q4, maybe too well. If we see a warm end to winter coupled with a stronger than expected return to work, we may see some shortages on certain steel items before Q2 delivery buys arrive.

There are concerns that Canadian steel mills may flood the Canadian market if faced with US 25% tariffs, lowering prices by increasing supply. However, this doesn't coincide with price increases we have seen from tube mills and pipe mills this month without an official tariff being put in place. Increases are rumored to be C$75 to C$100 per ton, which are substantial.

China has developed a new way of producing steel that requires much less energy and takes much less time. This might push Beijing lawmakers to go ahead and shutter older capacity.

Policy

US tariffs to come into play against Canada and Mexico on February 1st. We will see how Canada responds, not only to our American neighbors but to all imports entering Canada as well.

The Canadian dollar stays sticky in the 1.44 to 1.45 range to the USD. I believe USDCAD continues to weaken to a 1.55 level in the coming 30 to 60 days based on a few factors. See Final Thoughts.

EU applies CBAM targets for all steel imports, increasing the price of European-made steel products. This would impact steel mills servicing NA and EURO markets, as they would see an uptick in orders if they are still able to sell to Europe as a green-friendly mill.

Raw material and freight

NA HRC inches upward.

Iron ore still at 10-year lows.

Nickel has doubled the last 6 months (stainless steel product impact).

Freight from India to West Canada and the USA increase by +$2,000 USD per container (+$80 per ton increase).