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The impact of recent metal tariffs is beginning to emerge, creating unsettling dynamics within the industry as the effects of these tariffs take hold. With little indication that they will be lifted soon, stakeholders are bracing for prolonged challenges.
On March 12, U.S. President Donald Trump implemented 25 percent tariffs on aluminum and steel imports from Canada, prompting significant concern among Canadian producers. Last year, Canadian exporters shipped approximately $35 billion worth of metal to the U.S., and these tariffs are poised to severely disrupt that trade.
Although it’s uncertain how much these tariffs will increase consumer prices or curtail demand, industry experts suggest that the potential risks are escalating. Jean Simard, CEO of the Aluminum Association of Canada, stated that the tariffs could add roughly $3,000 to the cost of a Ford F-150 truck. When combined with steel tariffs and auto duties, the total increase in production costs could reach around $12,000.
“That’s destructive,” Simard commented, highlighting the substantial financial burden these tariffs impose.
Despite the ability of Canadian aluminum producers to pass on some of these costs to customers, the tariffs threaten to diminish demand in the automotive and construction sectors, which are the industry’s primary consumers. Simard noted, “There’s just that whole domino effect that comes into play, and we’re at the end of this.”
While companies have experienced some insulation from the initial impact, the financial consequences are already being felt. Recently, Alcoa Corp. disclosed that it incurred a $20 million loss in the last quarter due to tariffs, with an additional $90 million anticipated in the following quarter.
Alcoa, one of Canada’s largest aluminum manufacturers, indicated that even though increased customer prices may offset some costs, they cannot cover the full extent of the financial burden.
In contrast, Canadian steel producers face more immediate repercussions due to their inability to transfer higher costs to U.S. consumers. Catherine Cobden, president of the Canadian Steel Producers Association, warned that layoffs are imminent, alongside deferrals in investment and reductions in production capacity. She remarked on the challenges posed by the logistics of steel shipping, which complicate finding alternative markets, a situation exacerbated by a global oversupply of the metal.
“There is a significant amount of chaotic activity as people are pivoting around supply chains,” Cobden noted. “The market signals are not great.”
The Canadian Steel Producers Association is advocating for government intervention to implement border protections that would aid local manufacturers against the influx of cheaper imports. Cobden emphasized that the extent of layoffs will significantly depend on the government’s commitment to new border measures aimed at mitigating the adverse effects of the ongoing tariffs.
Despite fluctuating stances from Trump on various tariff categories, including auto duties which are deemed unsustainable, the imposition of metal tariffs appears to be a more permanent fixture, raising concerns among industry observers.
Analyst Ian Gillies from Stifel indicated that if the tariffs persist for several years, companies like Algoma Steel Group Inc. could face serious liquidity challenges. He subsequently revised his price target for Algoma from $21 to $15.25, reflecting the increased uncertainty in the market.
However, Gillies also mentioned that should the tariffs turn out to be temporary, a significant recovery could be within reach, stating, “We will be quick to reverse course on our target multiple if and when geopolitical risks subside.”
Meanwhile, Andrew Pappas, head of asset-based lending for metals at BMO, expressed skepticism regarding a swift resolution to the tariffs, anticipating that they will remain in effect and potentially accelerate changes to the USMCA treaty.
Despite Trump’s intention to bolster domestic metal production, Alcoa’s CEO, William Oplinger, questioned the efficacy of this strategy during a recent earnings call. He stated that establishing new smelting facilities would take years, with a significant number of new smelters needed to meet U.S. demand for primary aluminum. These facilities would also demand substantial energy resources, potentially equivalent to several new nuclear reactors.
“Until additional smelting capacity is built in the U.S., the most efficient aluminum supply chain is Canadian aluminum going into the U.S.,” Oplinger concluded, underscoring the interconnected nature of the North American metals market.
Source
globalnews.ca