Final Thoughts

Nothing like the small of tariffs in the morning

“If Governor Carney thinks he is going to make Canada a ‘Drop Off Port’ for China to send goods and products into the United States, he is sorely mistaken,” Trump “truthed” on Saturday morning. “If Canada makes a deal with China, it will immediately be hit with a 100% Tariff against all Canadian goods and products coming into the U.S.A.”

As is often the case with such posts, it was not immediately clear whether or when the tariffs might go into effect, what the legal justification would be, or whether they would stack on top of Section 232 tariffs. In short, just because there is a post on Truth Social doesn’t necessarily mean an executive order or an item in the Federal Register will follow. By the way, if this sounds familiar, it’s because we were asking similar questions about potential tariffs on Canada and Mexico during the Tampa Steel Conference last year.

Calling Carney the “governor” of Canada does nothing to lower the temperature between the US and what had been its closest ally. Canada and China didn’t agree to Canada becoming a “drop off port” for Chinese goods. They agreed to something far more limited. China, for example, said it would lower tariffs on Canadian canola oil. And Canada said it would lower duties on a limited number of Chinese EVs (49,000 to be precise).

That said, Chinese EVs have been a red line for both Democratic and Republican administrations. On top of that, Canadian Prime Minister Mark Carney drew a heated reaction from the Trump administration following his warning at Davos about a “rupture” in the US-led, post-World War II order. Further escalation didn’t exactly come as a surprise.

Goodbye, lower S232? USMCA on the rocks, too?

On Thursday during the AMU Community Chat, I asked AMU contributor Edward Meir (famous for the accuracy of his forecasts) whether he saw Section 232 tariffs, which now stand at 50%, coming down to 25% or even going away. After all, that’s what we saw in 2019 ahead of USCMA going into effect in 2020. And market participants have speculated for that we could see something similar ahead of USMCA negotiations in July.

Meir didn’t see it that way. “I would argue the other way. I think there is a chance he might even raise the tariffs this year for two reasons. Number one, he may not like what the Canadians are doing with the Chinese,” he said. “Number two, if imports continue to go up. (And) we’re starting to see them creep up.”

Editor’s note: It was a very good chat. And, again, You can listen to it here if you have an AMU subscription or free trial.

We were talking about S232 tariffs on Canadian aluminum. The S232 tariff on Canadian steel is also 50%. But in steel, unlike in aluminum, imports are down.

Canada remained (just barely) the top supplier of foreign steel to the US in December, the last full month for which data is available. It was licensed to ship 222,481 short tons (201,832 metric tons) to the US last month, according to government figures. That’s down 65.7% from 649,155 st in January 2025, ahead of S232 tariffs going back into effect on Canada in March of last year. I’m not sure, however, the numbers matter as much as they used to in the current heated political environment.

Meanwhile, Alan Price in his column noted something I think is plainly obvious now. USMCA negotiations are going to be a lot rockier than when the beef with Canada was over a TV ad. And as Price pointed out, there is a possibility that US manufacturers, if forced to choose between Canada and Mexico, might opt for Mexico. Again, we’ll see.

Demand outlooks diverge

Whatever happens with USMCA, at least one Canadian steelmaker has already significantly reduced its sales to the US. As I’ve noted before, if you would have told me a year ago that Section 232 would be 50% for everyone, including Canada, and that Canada had dramatically scaled back its presence in the US, I would have told you that I’d be surprised if US hot-rolled (HR) coil prices weren’t well above $1,000/st. (For what it’s worth, Jerry Richardson in his Community Chat on Wednesday, provided a good case on why US prices might remain elevated. You can watch that Chat, and get a copy of Richardson’s very good slide deck, here.)

That hot band is not at a grand might speak to the possibility of imports becoming competitive if US prices get too much higher. It might also have to do with politics. (The rumor about big price hikes or HR going above $1,000/st potentially drawing Trump’s ire.) And then there is the more pedestrian explanation that demand isn’t much improved from last year.

I know some of you, especially those bullish on data centers, think that’s crazy talk. You think steel buyers might soon be worried more availability than about price. But I’ve also talked to folks who say that demand is lumpy – one market or vehicle model might be pulling more steel than expected while another is falling short. And there are some who say the reality on “the street,” at least as they’re seeing it, is at odds with the bullishness about data centers.

Snowmageddon 2.0?

More immediately, another thing to keep an eye on – and what I had planned to start this column with before the latest tariff drama – is the severe cold descending over much of the US, including areas like Texas and the Southeast that aren’t used to snow and ice.

I was hoping that we’d be able to put together a graphic of the areas and mills most at risk. We didn’t have the time/resources to do that. So if you want to get an idea of where trouble might be, do this. Take SMU’s list of blast furnaces here and our list of EAFs here. Then overlay those locations on a map of where severe weather is expected.

Most of the mill executives my colleagues and I spoke to last week said roughly the same thing. They’re prepared. They’ll ride it out. Sure, things might slow down. Valves might stick. Shred might freeze together. And moving metal could be difficult if roads become icy. But they say it won’t be a repeat of “Snowmageddon” in February 2021.

Recall that’s when snow and ice clobbered the southern US and led to power outages (and mill outages) as far south as Mexico. The result: HR prices stood at $1,080 per short ton (st) in mid-January 2021 amid chatter about whether tags above a grand were sustainable. By March, they had shot to more than $1,300/st. And such chatter left the market entirely.

As I was writing this column over the weekend, it was too early to say whether North American mills would indeed ride out the storms or whether we’d soon be writing about weather-related outages. I think the big wildcard is whether there will be extensive power cuts.

One thing to keep in mind, sheet inventories in January 2021 (40 days of supply) were a lot lower than inventories now. And lead times then, nearly eight weeks on average for HR, were significantly longer than the six weeks on average we’re seeing now.

Steel earnings season

One thing we’ll definitely be writing about this week is earnings. Steel Dynamics Inc. (SDI) kicks off steel earnings season on Monday followed by Nucor on Tuesday. On the M&A side, I’m curious whether SDI will say anything about its attempts to buy BlueScope. On the operations side, I’ll be listening for any detail about an outage at its mill in Butler, Ind., over the holidays as well as anything on whether a fire at its mill in Sinton, Texas, was significant. I’m also curious to hear what both steelmakers are saying about demand. That’s especially so when it comes to data centers, a potentially hot area in an otherwise lackluster nonresidential construction market.

Cleveland-Cliffs, meanwhile, will report fourth-quarter earnings on Feb. 9. Cliffs sometimes announces big news ahead of earnings. Could we see an announcement about a potential deal with South Korean steelmaker POSCO? I’m also hoping we’ll get some detail on how automotive demand is shaping up. Is there evidence of significant shifts to steel from aluminum in future model years? Also, is sourcing among transplant automakers shifting more toward domestic steel suppliers?

Finally, Ryerson typically releases Q4 earnings in mid/late February. Could we see its deal with Olympic Steel close before then?

Tampa Steel: warm weather, hot content

Speaking of M&A, we’re thrilled to have both Worthington Steel President and CEO Geoff Gilmore and Kloeckner Metals CEO John Ganem speaking together on stage at the Tampa Steel Conference on Feb. 12. I’m looking forward to hearing what Worthington Steel’s acquisition of Kloeckner will mean for the market from the two people best positioned to talk about it.

You can find the full agenda for the event here. And for those of you have haven’t registered yet, you can join more than 500 of your best friends in steel for some fun in the sun on Feb. 11-13 here.

For now, stay warm, everyone. And thanks for your continued support of SMU!