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TORONTO \u2014 The costs and chaos being caused by metal tariffs are starting to build up after a month in effect, and there\u2019s little hope they\u2019ll be removed in the foreseeable future.<\/p>\n
U.S. President Donald Trump imposed 25 per cent tariffs on Canadian steel and aluminum on March 12, while also raising metal tariffs for other countries.<\/p>\n
While it\u2019s still not clear how much higher the tariffs will push consumer prices, Alcoa Corp. reported that its last quarter saw a US$20 million hit from tariffs, and that they could lead to a further US$90 million in additional costs in its second quarter.<\/p>\n
The Pittsburg-based company, which is also one of Canada\u2019s largest aluminum producers, says higher prices are expected to offset some, but not all of those costs.<\/p>\n
Catherine Cobden, head of the Canadian Steel Producers Association, says steel producers in Canada haven\u2019t been able to pass on the higher costs to its U.S. customers, causing companies to start to cut back on production and lay off workers.<\/p>\n
She says the tariffs are causing widespread disruption and uncertainty that not only affects current operations but orders and investments.<\/p>\n
\u201cThere is a significant amount of chaotic activity as people are pivoting around supply chains,\u201d said Cobden.<\/p>\n
\u201cThe market signals are not great.\u201d<\/p>\n
Cobden and the association are pushing the Canadian government to put in border protections to help buffer Canadian producers from cheap imports, so they can better weather the tariffs that don\u2019t look to be short-term.\u00a0<\/p>\n
While Trump has wavered on numerous categories of tariffs, such as auto duties that analysts say are unsustainable and the global reciprocal tariffs that he paused for 90 days shortly after announcing them on April 2, the metal ones could be a longer-term reality.<\/p>\n
Stifel analyst Ian Gillies said in a note that if the tariffs \u201clast a number of years\u201d that a company like Algoma Steel Group Inc. could face liquidity risk. When the tariffs came in, he cut his price target for Algoma from $21 to $15.25.\u00a0<\/p>\n
However if tariffs were to be temporary, it could mean a significant rebound ahead, he said.\u00a0<\/p>\n
\u201cWe will be quick to reverse course on our target multiple if and when geopolitical risks subside.\u201d<\/p>\n
Andrew Pappas, head of asset-based lending for metals at BMO, said in an April 3 note that he doesn\u2019t see a quick end to the metal tariffs.<\/p>\n
\u201cOur view is that the newly imposed metal tariffs on Canada and Mexico will remain in place and will expedite the reworking of the USMCA treaty.\u201d\u00a0<\/p>\n
The tariffs, and reciprocal ones by Canada and others, could lead to price increases, and raises the question of the potential for demand destruction with the direction still unclear.<\/p>\n
While Trump\u2019s aim with the tariffs is to boost domestic production, Alcoa chief executive William Oplinger raised doubts about that potential on the company\u2019s earnings call last week.<\/p>\n
\u201cIt takes many years to build a new smelter, and at least five to six smelters would be required to address the U.S. demand for primary aluminum.\u201d<\/p>\n
Those smelters would also require the energy equivalent of almost seven new nuclear reactors, he said.<\/p>\n
\u201cUntil additional smelting capacity is built in the U.S., the most efficient aluminum supply chain is Canadian aluminum going into the U.S.\u201d<\/p>\n
\u00a92025 The Canadian Press<\/strong><\/p>\n<\/p><\/div>\n