Final Thoughts

The statement provided by the Canadian flat-rolled steelmaker to SMU appears to partially support what some of you have told us over the phone. Namely, when it comes to spot sales, we’ve heard from some of you that Algoma has closed October and hasn’t decided whether it will open November to US customers. On the contract side, we’ve heard that has Algoma pulled out of November and December contracts for US buyers – or that it will be shipping less than it otherwise would.

As for 2026 contract negotiations, we’ve heard that Algoma has told some of you that the company won’t entertain contracts for US buyers next year. Or that they’re waiting to see how the market, and politics, develop before considering 2026 US contracts. And that the company is probably doing so fully aware that it might be late to contract mating season if/when they do come back to the table later this year – and could lose some opportunities as a result.

To be clear, I’m not jumping to any conclusions about Algoma leaving the US market. Partly because the chatter about what’s going on varies depending on who you talk to. But I think it’s fair to say that Algoma is taking far more conservative approach to US sales – and understandably so.

It’s not just Algoma

In some respects, the big surprise is that this news didn’t come sooner. For the sake of round numbers, let’s assume that prevailing US hot-rolled (HR) coil prices are $800 per short ton. (SMU is a little lower than that.) If Canadian mills are absorbing a 50% Section 232 tariff and freight, how doesn’t that back out to an fob mill price in the $400s/st? And can anyone be profitable at those levels?

I’m not trying to pick on Algoma here. Cleveland-Cliffs said as far back as May that it would keep tons from Stelco in Canada. Recall that Cliffs acquired the Canadian flat-rolled steel producer last year, before a 50% S232 tariff was on anyone’s bingo card. And we’ve heard that Stelco, like Algoma, has significantly ratcheted back production.

There are other parallels, Barry Zekelman – who holds a minority stake in Algoma Steel – has long called for Ottawa to do more to protect the Canadian steel market from imports. Lourenco Goncalves, the CEO of Cliffs, has done the same. So far at least, they’ve not gotten the trade policies from Canadian politicians they’ve been hoping for.

TACO doesn’t apply to tariffs

I really feel bad for the good folks at Algoma. It’s hard work to build a new EAF mill. It’s arguably even harder to take an older integrated plant and convert it to EAF production – all while keeping output and customer orders flowing as usual. But those challenges were anticipated, and the company has done a good job of meeting them. Who could have anticipated a punishingly high 50% tariff from your next-door neighbor?

Let’s remember, too, that almost as soon as the 50% tariff went to effect in early June, Bloomberg reported that a deal with Mexico was in the works. The smart money seemed to think that TACO applied to S232 tariffs. And if Mexico got a deal, wouldn’t Canada be next in line?

Maybe we’ll see a repeat of Trump’s first term, when Section 232 was lifted from Canada and Mexico in May 2019 ahead of USMCA going into effect in 2020. The difference this time would be that the tariff would be lifted ahead of a USMCA review scheduled for next summer.

But for better or worse, Trump 2.0 is shaping up to be a lot different from Trump 1.0. So, I don’t know that 1.0 is the best template for predicting what 2.0 will do.

Where is the price response?

To be honest, what surprises me more than the 50% tariff remaining in place (I figured it would) is that there hasn’t been more of a price response from the US market to its largest supplier of foreign steel reducing its traditional presence in the stateside market.

Let’s put some basic numbers around that. Canada shipped 6.56 million short tons (st), or 5.95 million metric tons (mt), of steel to the US in 2024, according to US government figures. Most of it, 3.95 million st, was carbon flat-rolled steel. Brazil was a distant No. 2 with 4.50 million st. And Mexico was No. 3 at 3.52 million st.

Here is another way to think about it. And let me be clear that I’m focusing just on the flat-rolled side of things. Canada was sending about 330,000 st of flat-rolled steel a month to the US last year.

Let’s assume the average flat-rolled steel mill churns out about 3.3 million st a year. That means Canada’s exports to the US are effectively more than a major domestic mills’ worth of supply every month. And a major mill stopping or sharply reducing output would typically create ripple effects across the market.

Remember Snowmaggedon!

Canadian mills scaling back their presence in the US won’t be felt equally.

Stelco had long been a thorn in the side of integrated mills in the Midwest and Great Lakes before Cliffs acquired it. And Algoma has long been competitive with domestic producers in the Great Lakes and in the Upper Midwest.

There is nothing wrong with fair competition, by the way. And, also, Algoma is simply geographically closer to a lot of consumers in the Upper Midwest than US mills are.

My point is this: All else being equal, you’d think losing a major source of supply (or just chatter about that happening) would cause prices in the Great Lakes/Midwest to rise.

We saw something analogous in the winter of 2021, when a cold snap in Texas and northern Mexico temporarily idled a significant amount of Mexican steel production. That – combined with startup issues at SDI’s mill in Sinton, Texas – created a supply shortage. And that shortage soon spread from the US-Mexico border to as far north as the Great Lakes.

Perhaps U.S. Steel deciding to keep its Granite City Works near St. Louis running has muted the impact of any Canadian retreat from the US market? Or maybe we haven’t yet seen the impact ripple out across the supply chain?

Where is the demand?

At least for the time being, for every person who tells me that their company has seen a flurry of activity this week, another tells me that things are slower than they were last week or the week before – or that it’s eerily quiet.

Again, I’m not saying we won’t see a price response. You’d think we’d see one soon because of lower service centers inventories, lower imports (and potentially much lower imports if Canadian tons decline), and steady demand. But if we don’t see sheet and plate prices move, you have to wonder what that says about demand.