Canadian steelmakers fret over Section 232 potentially redirecting imports

Canada's steel industry participants worry that the Section 232 tariff in the United States will cause foreign material previously bound for the US to be diverted into their country, but so far the Canadian producers have stopped short of calling for equivalent tariffs.

Instead, Canadian steelmakers are hoping that their nation’s existing trade frameworks will be enough to keep a flood of foreign steel from being redirected across their borders. They stand ready to file new anti-dumping cases and are asking Prime Minister Justin Trudeau for additional enforcement funds.

The prime minister conducted a three-day nationwide tour of steel and aluminium plants during the week of March 12, pledging that his government would “always stand up for Canadian steel and aluminium workers.” Joseph Galimberti, president of the Canadian Steel Producers Association (CSPA), said Trudeau appears to recognize the need to be proactive in thwarting the potential redirection of imports.

“The prime minister is committed to taking this problem – or potential challenge – very, very seriously,” Galimberti told American Metal Market on Monday March 19. “He was consistent and resolute in his statements to our members and the employees.”

The Canadians feel extra urgency in approaching the redirection threat not only as a possible destabilizing influence on their own steel market but also as an issue that could damage negotiations with President Donald Trump’s administration while the two nations and Mexico rework the North American Free Trade Agreement. For the moment, Trump has granted Canada an exemption from the Section 232 tariffs, meaning Canada could be a ripe waypoint for unscrupulous importers attempting to circumvent Trump’s tariffs of 25% on steel and 10% on aluminium.

Galimberti’s CSPA members have a lot to lose if Canadian authorities can’t stop a sudden flood of diverted steel imports, the association stated in a letter to Trudeau on March 13.

“If only 15% of current offshore steel imports into the US were diverted to Canada, prices would plummet, and the offshore import market share could double, thereby supplying almost 50% of domestic demand and devastating Canadian steelmakers,” the letter stated.

Canada’s government needs to prepare a rapid response that ultimately may include regulation changes and even new laws in Parliament, Galimberti said in the interview. He asked for an immediate increase of federal enforcement funding.

The Canada Border Services Agency “needs a reasonable appropriation to deal with this enhanced challenge – the appropriate inspection capacity and the appropriate enforcement capacity,” Galimberti said.

On March 13, three Ontario regional chambers of commerce serving steelmaking communities issued a joint letter to Trudeau urging the prime minister to take steps to defend Canada’s steel industry. The Hamilton, Windsor-Essex and Sault Ste. Marie chambers of commerce made eight recommendations that mostly addressed how to maintain a favorable position in the Nafta talks.

The chambers urged Trudeau to “immediately develop surge remedies” not only to thwart a flood of redirected steel but also to prevent greater US scrutiny on routine steel shipments moving south of the border from Canada.  

“The key to preventing tariffs on Canadian steel will be a clear and determined position that demonstrates that Canada will not become a dumping ground for diverted steel and steel products,” The chambers’ letter said. At the same time, the efforts could enhance the ability of the United States and Canada to cooperate more on reducing global overcapacity.

Hamilton, Windsor-Essex and Sault Ste. Marie together represent 68% of the nation’s steel production, according to the chambers of commerce.

A Canadian mill source said relatively attractive overseas offers are already coming in for goods ranging from hot-rolled coil and other sheet products to welded pipe.

“The Canadian government is working behind the scenes to ensure that the cheap steel doesn’t flow into the US,” the mill source said. “Canada is going to do something. We are going to have to file some sort of trade cases to assess duties … to block the steel from coming in.”

A US-based tubing importer said it’s unlikely that North American traders would attempt to divert overseas material through Canada to avoid the Section 232 tariff. 

“I don’t know anyone who would bring product into Canada and then into the United States,” that importer said. “You jeopardize your livelihood by doing something like that. There have been foreign companies that tried that and got caught.”