Policy, demand, and the AI bubble holding it all up

I have decided to only write a report every two months moving forward. I think two months is enough time for events and data to write reports that aren't redundant. I know you want MOAR. Sorry. Sometimes steel moves fast, sometimes it moves slow.

This report focuses on what we have seen after the first TRQ quarter has passed in Canada, trade talks, demand, and some theories into the future on what may move the price of steel as we approach 2026.

Also, a key point is the lead time problems that I believe will be arising due to the TRQ in Canada, and the inevitable supply shocks that I think many people in the industry expect to happen.

Happy reading.

Tariffs so far

The first Canadian tariff rate quota quarter has come and gone. All quotas filled to relatively high levels, where many categories reached max utilization. This was interesting to witness, because this time frame usually doesn't see a lot of imports landing.

The current TRQ quarter data will reveal how importers reacted to this system. Most importers I had direct conversations with were bullish on the news when it was first announced, vowing to press the gas on imports to trigger tariffs and sequentially cost increases.

When I focus on CS pipe for Eastern Canada in our customer base, I have noticed something important that needs to be conveyed. Due to the ton limit per country per category, to conservatively navigate this quarter and the next, Intermetalink must push recent orders that would have been promised for 26Q1 to 26Q2.

Also of note: in certain categories we have limited tons to offer, even for a 26Q2 readiness. I expect pre-Christmas orders to fill that available tonnage quickly, "closing off" 26Q2 completely. Buyers back to work in January from the holidays looking to buy steel may face best delivery out to late 26Q3. I believe this statement to be true for all steel products in all regions across Canada.

Trade policy is what is going to shape the price of steel for the foreseeable future.

US-Canada trade talks

This is a lot more important to the Canadian economy than most people think. Let's look at the numbers. Our top trading partners:

• Canada exported $420B to the US, $20B to China, $20B to the UK, and $10B to Japan in 2024. For a total of $470B to those mentioned countries. Our total exports to all nations in 2024 were $550B. 76% of our exports go to the US. Talk about customer concentration.
• Close to 20% of our global export revenue comes from steel derivatives sold to the US.

$550B breakdown

• $125B Oil
• $50B Vehicles
• $30B Machinery
• $20B Commodities (steel, lumber)

Close to 20% of our export revenue is from steel or steel-derived products.

Given the above, the Canadian steel manufacturing sector and all the industries it touches is critical to the Canadian economy. For this reason, I believe PM Mark Carney must make a deal. And in my humble opinion as an amateur conspiracy theorist, that deal has two major points:

A fixed price structure for Canadian steel mills to follow with the American mills. HRC FOB mill $800-850/T. That converts to C$1,120/T (C$56.00/CWT) for Canadian coil mills.

A blanket tariff (50%) on all steel entering Canada. Scrap the TRQ system.

Canada will be forced to operate outside the WTO rules. But with Europe just recently overhauling CBAM in a radical way, I think the rules of the game continue to change and surprise.

This "deal" will push prices up drastically in Canada.

Dark demand

From conversations, most distributors' demand has been tepid, or as one person who will remain anonymous has described, "demand has been SHIT."

Toronto construction (hi-rise and lo-rise) is down YoY by 25% (if not more). Fabricators who have historically sold to US customers have had that market closed off. Warehouse construction is gone.

Where there is positive light is in data centers and infrastructure for support said data centers. The AI bubble is here. When it pops, we won't have much to stand on anymore. This connects to the weakness in the US stock market and the loonie. As the Dow falls, so does the loonie.