Canadian steel is footing the bill for the wall with the US

Steel was one of the main triggers that derailed the negotiations to renew the USMCA (the free trade agreement between the United States, Canada and Mexico that replaced NAFTA), leading Washington and Ottawa to open confrontation in recent days. This is a factor that is throwing the decisions of the major market players (including the American firm Cleveland Cliffs) into disarray, forcing them to make painful financial choices and rapidly reposition themselves on the domestic market.

There is no doubt that the steel industry has been the most powerful trigger for the upheaval of recent weeks, with Canada deciding to respond to the US escalation by imposing retaliatory tariffs on 8 September, initially targeting over 300 products made from American steel (and aluminium) and doubling tariffs to 50 per cent. One year on from the introduction of Section 232, with 50 per cent tariffs on steel imports into the US, the Canadian steel industry was already on its last legs following the protracted standoff with the US industry, which had no intention of giving up the benefits (evident in financial statements and on the market after 12 months of implementation) of the special tariff system. Now, new layers of restrictions and constraints loom large – some already in place, others threatened and expected to come into force from 2027.

According to data from the Earth-i Savant Global Monitoring Index, steel production in Canada fell by 15 per cent in May compared with 2025, one year on from the Trump administration’s first round of restrictions, whilst the year-to-date figure shows a 14 per cent decline compared with the same period last year. The main cause of this contraction – the study continues – is the drastic reduction in exports to the United States, triggered by the notorious 50 per cent tariff linked to the Section 232 mandate (May 2025) and, in recent months, the extension of tariffs to steel products as well. Trade flows to the US have plummeted, with Canadian exports falling by 31 per cent during 2025 and recording a cumulative decline of 55 per cent in the first three months of 2026, according to reports from the US International Trade Administration.

The situation for the major players can only get worse from here, even though the Canadian steel industry is weathering the storm by readjusting its strategy for the domestic market and distancing itself from the US automotive supply chain, partly thanks to the Ottawa government’s massive economic aid package.

Algoma, with an output of 2.2 million tonnes, founded in the early 20th century and a key player in the development of the Canadian rail network, is the main factor behind the annual decline in all national general indices, given that around half of its primary commercial products are traditionally sold to the US. The group announced the closure of its blast furnaces in January and is progressively investing (one billion Canadian dollars to date) in electric arc furnace facilities, a strategy which, however, is taking a heavy toll in terms of production capacity and financially: it is estimated that Algoma will generate a negative EBITDA in 2026, having already closed the previous financial year (ending 31 March this year) with a negative adjusted EBITDA of around 450 million. Since May last year, the company’s shares, listed on the Nasdaq, have lost around 30 per cent of their value. Analysts, however, expect a return to break-even in 2027, as production at the new plants reaches full capacity. Wire rod and rebar producers, such as Ivaco and the Canadian division of Gerdau North America, are also facing difficulties.