Prices are up, but do they stick?

The main drivers of steel prices remain energy, tariffs, and restricted import options. US flat and long products have risen approximately 50% in the last 12 months. This has created a unique market for both our American and Canadian customers. I will share what we have seen play out since our last report and what I think will happen from here until the end of the year. Coffee in hand recommended.

Raw materials

Iron ore, coal, and scrap prices have been soft globally. Those elements have not seen any structural volatility. Energy is another story.

I believe it is in Iran's interest to escalate the war. The more destabilized the shipping lanes become, both the Strait of Hormuz and now the Bab al-Mandab Strait, the more power Iran has in negotiating $300B in reparations and other points. Expect a return of high energy prices into the fall as we approach the midterm elections.

US HRC has been the story of the year. Canadian HRC is now catching up. Today, Canadian flat mills are closing or repositioning toward plate production. Lead times are out to October-November as of today, and tube and pipe mills in Canada cannot provide pricing or delivery dates into the future. Dare I say the word allocation?

This is the new floor for steel prices in Canada and the U.S., there is no going backwards from here.

Policy

US tariff policy has remained unchanged since Section 232 increased from 25% to 50% on commodity goods entering the US. However, new sectoral tariffs, such as Section 338 and Section 301, were implemented this summer. These seem to be politically motivated, a lever to punish trading nations trying to sell downstream steel products into the United States. I believe this to be fine: build a tariff wall, find the holes, and patch those holes.

Canada's tariff-rate quota system is approaching one full year of implementation. In the last three months, we have seen the CBSA adjust quota limits downward in many categories. Recent cases against bonded steel have also been brought forward to address the issue, alongside requirements for importers to be resident companies of Canada. These are all events that will make imported steel harder to bring into Canada. I have always advocated for a flat 50% tariff on all goods, mirroring what the US has done. Maybe we will soon have that.

Customer markets — USA and Canada

"It feels like COVID again", a bold statement, but one I have heard many times in the last few weeks from both Canadian and American customers.

Canadian steel service centres are reporting strong sales. They are selling domestic steel and trying to keep up with recent price increases. American customers are looking to secure fast deliveries where coils are on the ground at the overseas mill and shipments can be executed within 30 to 60 days maximum. Tight timelines in contracts allow customers to walk away if they are breached.

Canadian customers, across almost all categories, are hesitant to book indent orders. However, once material is in transit or on the ground, interest comes quickly. This shift in buying has forced us to stock more and take more risk as a master distributor in Eastern Canada. I think this hesitation is just fear of the unknown. Those with the courage to buy will be rewarded.

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