Scrap market reacts on tariffs from both sides of border

Tariffs by the Trump administration on ferrous scrap would disproportionately impact the flow of scrap, mainly industrial scrap into the US.

SMU spoke to a large Canadian exporter of scrap into US mills. He said they have scrap en route to the US via railcar. They have fixed contracts on most of their shipments.

So far, none of their US buyers have instructed them to halt shipments, although one steel producer has notified the trade they will not buy anything from either potentially tariffed country for February.

Our Canadian source said, “It’s not us who has to pay the tariffs; it’s the US customer.”  

So, they are waiting to see what ensues next week before making any further decisions.

Another source in Canada involved in the iron ore and metallics trade said the last time Trump enacted tariffs, there were exemptions for iron ore and ore-based metallics, pig iron, and DRI.

This time they do not know if there will be exemptions. The Canadian producers will have to be advised of these new tariff details before they assess the implications.

However, he continued, if tariffs are placed on Canadian iron ore, he doesn’t think it will have a serious effect since their exports can be redirected to other countries. Canada does produce a high-purity grade of pig iron called sorelmetal. It is distributed to a degree into the US foundry industry. This same product is also imported from South Africa from the same company.

Our source also volunteered his views on the stated reasons for tariffs by the US administration.

“They cannot be taken seriously,” he said. He said despite the US and Canada sharing a border of over 5,000 miles, most of the fentanyl and massive illegal immigration is coming from Mexico, not from Canada.

The Canadian/US border is one of the busiest and best managed in the world. And Canada, a US ally, has already announced a plan to increase border security, he added.

On the trade deficit, he said the following:

“Trump’s comments regarding trade deficits with Canada are poorly characterized. While it is true that the US has a trade deficit with Canada, if you remove energy (oil/gas/electricity), then there it is actually a surplus for the US (i.e., manufactured goods). Also, many of the US border states are in trade surplus with Canada, so if Canada retaliates, it is these US border states that may be hurt.”

A US Midwest-based scrap executive offered a couple of scenarios when ferrous scrap is subject to tariffs. The tariffs will drive a short-term increase in the demand for prime industrial grades of scrap. This will mainly affect mills in Detroit, the Ohio Valley, Pittsburgh, Northern Indiana, Northern Ohio. If it lasts longer, the tariffs could increase pig iron and DRI use.

Also, he said, in the medium term, the tariffs could increase hot-rolled coil (HRC) purchases. Mills, especially integrated ones, would have no trouble meeting this increase in demand. On tariffs for Mexican scrap, they should drive scrap prices down in Mexico and maybe strengthen prices in Texas.

Another source said an an EAF steel producer has held up scrap from Mexico as they reportedly don’t want to pay the tariffs.