ArcelorMittal’s Dofasco mill in Hamilton, Ontario, still sells flat-rolled steel to the US and accounts for the majority of that $100 million in extra tariff costs that ArcelorMittal’s Canadian operations must bear, ArcelorMittal SA president and chief financial officer Aditya Mittal said. Dofasco continues to sell to the US, where 25% tariffs were levied against imports from the Canada, he noted.

“In terms of passing on the tariffs, I think fundamentally we get the US price and then we pay the tariff,” Mittal said during the call. “So that's our net-back that we get for our Canadian business... Roughly, there's no change to that. It's costing us about $100 million per quarter.”

That extra cost for the steelmaker’s Canadian operations comes after a weak fourth quarter in US steel prices.

Fastmarkets AMM’s daily hot-rolled coil index had fallen by 15.2% at the end of the fourth quarter, to $36.21 per hundredweight on December 31 from $42.68 per cwt at the start of September. The index stood at $34.22 per cwt ($684.40 per short ton) on February 7.

US spot prices for HRC fell by $1.20 per cwt in the final month of last year, with the December 31 price off from $37.41 on November 30, according to Fastmarkets AMM price data - tied for the third fastest monthly decline seen in 2018.

Average steel sales prices for ArcelorMittal’s North American division – which includes Canada, Mexico and the US – fell by 1.6% sequentially to $882 per tonne in the fourth quarter from $896 per tonne in the preceding three months, according to the company's earnings data.

Steel output and shipments also fell quarter on quarter in that region due to a “market slowdown” and “weak market conditions in the US,” ArcelorMittal said in its earnings statement.

The steelmaker shipped 1.83 million tonnes of flat-rolled steel in North America during the fourth quarter, down from 1.95 million tonnes in the same quarter a year earlier but up from almost 1.7 million tonnes in the third quarter.

Still, even if US spot prices were weak, especially in December, ArcelorMittal will see contract prices reset - a “positive headwind” while the company enters 2019, Mittal told analysts.

Recent price increases in US markets, among others, should also “more than offset” higher raw material costs, he said.

US mills announced price increases of $40 per ton in January, which have met with limited success and acceptance among buyers. 

Major US and North American flat-rolled capacity additions, even if they come online only in 2020 or 2021, could present a headwind to ArcelorMittal’s US business, one analyst said, especially if the Section 232 tariffs don’t last beyond 2020.

Still, until then the Section 232 tariffs have created a healthy US market where imports are less competitive and where extra capacity might service demand, Mittal said.

Since the Section 232 tariffs aimed to boost capacity utilization and encourage US steel investment, there is now a “chicken or egg” situation, he added, noting that extra US capacity is a “reflection” and result of the success of the Sectiion 232 tariffs.

“You have the capacity now, which is because of Section 232. And therefore hopefully it demonstrates to US stakeholders that it is important to keep 232 for a longer period of time,” Mittal said, responding to concerns about long-term excess capacity for US flat-rolled steel.

Of note, ArcelorMittal optimized its assets and steel works at its Indiana Harbor plant in East Chicago, Indiana, during the fourth quarter with the completion of a multiyear project that included a new caster, restoration of a hot-strip mill and better finishing operations.