Final Thoughts

Every week is Tariff Week

Also, Tariff Week is not just one week. We had one Tariff Week this week: Universal tariffs of 25% on Canada and Mexico went into effect on Tuesday. We have another Tariff Week coming up next week: Section 232 tariffs of 25% on all steel and aluminum imports on March 12.

As far as I know, there won’t be a round of St. Patrick’s Day tariffs on March 17. That means we get a reprieve until April Fool’s Day, when some key reports on yet more tariffs are due to the White House. (Think “sectoral” tariffs on things like automobiles and lumber as well as reciprocal tariffs to counter-tariffs other countries place on US exports.)

If you’re having trouble keeping up with it all, SMU’s Laura Miller has a good article here. That’s what we know. And let’s face it, a lot of details are simply unknown at this point.

Is it working?

Our readership tilts pro-Trump. (One of our pre-election surveys suggested about 58%.) And even anti-Trump folks wanted him to do a lot of what he’s doing now. Who among SMU readers doesn’t want to see more steel and manufacturing brought back home, or closer to home?

I think the issue in some corners is that Trump is doing everything all at once. And the scope is much broader than most expected.

For starters, I’m not sure a trade war with Canada was in many crystal balls. The idea was that this was all a negotiating tactic. That almost seems quaint now.

Also, among some, there’s frustration that Trump 2.0 doesn’t seem to write much down. Which means it can be hard to figure out what’s actual policy and what’s just a threat made on TV or posted on social media.

At this point, it looks like the universal 25% tariffs against Canada and Mexico don’t have any exclusions for raw materials such as pig iron or scrap. SMU’s Steve Miller has some interesting thoughts on what that might mean for the domestic scrap market here.

If tariffs remain on Canadian and Mexican scrap, it would be unprecedented because scrap has been one of the few commodities that has remained about as close to freely traded as it gets. (Yes, there are of course non-tariff barriers. But I don’t want to go down that rabbit hole today.)

Canada and Mexico in the penalty box

What’s also notable is that, as things stand right now, Canada and Mexico – the United States’ closest trading partners – now face among the strictest tariff regimes.

Section 232 will place 25% tariffs on all nations. That’s not a change for those that already had a 25% tariff. But if there is no carve-out for Canadian and Mexican steel when the revamped 232s go into effect next week, Canada and Mexico will face 50% tariffs on steel exported to the US.

And my guess is that steel buyers will be facing higher coating extras soon as well. Zinc from Canada doesn’t face a 25% tariff. It’s considered a “critical mineral.” That means it, like crude oil and natural gas from Canada, faces only a 10% tariff.

I wouldn’t be surprised if coating extras for Galvalume really pop too. The US relies heavily on imported aluminum. The Trump tariffs on imported aluminum are set to go from 10% to 25% on March 12, when Section 232 goes into place.

The US gets most of its imported aluminum from Canada. And aluminum, like zinc, is listed as a critical mineral. That means, unless something changes, tariffs on Canadian aluminum will go to 35%. (I.e., 10% universal tariff + 25% Section 232 tariff.) What a change from just yesterday, when Canadian aluminum faced no tariff.

Canada not having it

Frankly, it’s getting a little hard to keep score because there are so many more variables than with the Trump 1.0 trade wars.

Canada retaliated against the US tariffs. Trump then threatened to retaliate against that retaliation with reciprocal tariffs.

Meanwhile, Ontario Premier Doug Ford has threatened to tax electricity exports to the US from the province, per CBC. He also said the province, an important nickel miner, would look for non-US buyers, according to Northern Ontario Business.

That was a theme at Prospectors and Developers Association of Canada (PDAC), a massive mining conference held this week in Toronto. The CEO of Teck Resources, a Canadian miner, said the company would look for zinc buyers outside the US, according to media reports.

I wonder what the late Leo Gerard – a nickel miner from Sudbury, Ontario, who went on to become head of the United Steel Workers (USW) union in Pittsburgh – would think of all this.

Sure, the first iteration of Section 232 ruffled some feathers among US allies when it was first rolled out in 2018. But I don’t recall anything on par with what we’re seeing now.

Inflation coming back?

I’m hoping (against my better judgement) that it all turns out OK in the end. But I think the risk is that this becomes inflationary and hurts what has been a good start to the year.

It’s hard to see how automobile prices don’t rise with so many parts crossing North American borders multiple times. And I’d already been wondering how anyone could afford a new car if the average price for one was around $50,000, per Kelley Blue Book. And that was before the tariffs went into place.

It’s also hard to see how new home prices don’t rise with tariffs not only on Canadian steel and aluminum but also on Canadian lumber.

And then there are the really big questions. Is all this aimed at bringing manufacturing back to the US? Or is it more about changing the world order as we know it – with the US less aligned with traditional allies like Canada, Mexico, and Europe?

That’s above my pay grade. So I’ll get back to the things I know. Or at least that I think I know.

US flat rolled prices up sharply (again)

US steel prices continue to surge higher as companies buy to get ahead of the next round of price hikes or the next round of tariffs. And, yes, a lot are also buying because demand is better.

But will they continue to buy from US mills? I ask because a few of you have told me you’re seeing more import offers now than you’ve ever seen.

And that’s not just among companies along the coasts. It’s also folks who are getting competitive offers for material delivered into the Midwest. We’re talking about $700s for HR and $800s for cold-rolled for June/July delivery to the US.

With US prices so high, a 25% tariff isn’t stopping anyone. And with Section 232 quotas soon to be a thing of the past, there is no restriction on import volumes. Will US buyers swing to buying more foreign steel because of a policy designed to prevent just that? Or will the threat of Trump lifting Section 232 to 50% or even 75% prevent stop such a shift from happening?

Capacity utilization still low

Then there is the matter of US output. Section 232 was originally designed to keep capacity utilization above 80%. Mills enjoy efficiencies there that they don’t have when operating at lower levels.

And yet, according to data from the American Iron and Steel Institute (AISI), US mill capacity utilization was 73.7% last week – the lowest reading in two months. That’s down from 74.5% the week prior and from 77.5% this time last year – way before Trump tariffs were even a talking point.

There had been chatter that Cliffs would restart the C-6 furnace, which it idled last fall, at its Cleveland Works. The company poured cold water on those rumors during its earnings call last week.

Should we say ‘Trolling Week’ instead?

With steel prices this high, why isn’t more capacity ramping up or restarting? Is it because the demand isn’t there? Is it because mills don’t expect current pricing to last? Or is it something else?

Let me know if you have any good theories. Here is one: We’re all being trolled.

Commerce Secretary Howard Lutnick said late Tuesday afternoon – after it seemed like we’d time traveled to 1812 – that Trump would find a way with Canada and Mexico “to meet you in the middle in some way.” When will that happen? “We’re probably going to announce something tomorrow,” Lutnick said, according to a Bloomberg report.

Sounds like Tariff Week might still have some new plot twists before it’s over. Stay tuned to SMU for what this story means for steel, and thanks for reading!