Canada steel: what’s behind the boom in global production?

Largest production increase in six years coming from giant players like ArcelorMittal as demand from China slows

The last time Canada made a serious effort to revive the moribund steel industry, the result was the Mulroney government’s disastrous failure to renegotiate the North American Free Trade Agreement.

Steel: Canadian conservatives bet on finding another lifeline Read more

This time the sands are shifting as Canada’s prime minister, Justin Trudeau, flies to China this week hoping to persuade China’s communist leaders to open up the Chinese economy to Canadian companies, as the US has done over the past two years.

That’s a big ask, as the price of Canadian steel has soared since the Trudeau government hiked the carbon price to meet EU emissions targets. The most active player in this boom is the world’s largest steelmaker, ArcelorMittal, which in 2017 has increased its steel production by 11% compared with the year before.

The rising cost of steel in Canada means consumers are paying almost as much at the checkout as they do in the US, Europe or Japan.

Trudeau hopes to get China to buy Canadian steel and plastics. China is the world’s largest manufacturer of such goods and Canada has many of the critical factors on its side.

The prices of imports of these products into Canada spiked by more than 6% in August compared with the previous month, while imports from the US have fallen by 11% according to the Bank of Canada.

“Prices are higher for Canadian steel products, so producers are looking to export. So they have big incentives to find a way to switch to new technology,” said Shane Enright, a vice-president at ARC Financial. “But Canadian steel is growing in popularity for shippers in the US.”

Despite billions spent on carbon pricing in Canada, such exports are prohibited from the US. In 2010, Canada moved to ban shippers from using “foreign-sourced” steel as a trade barrier against the US.

Politicians have also cracked down on sales that potentially benefit the Canadian coal industry, sending a “strong signal” to steelmakers to switch to “Green steel”.

Experts believe Green steel is a contentious issue because of concerns among the mostly southern US milling business that using steel from Canada would make it tougher to turn a profit.

A big part of the equation is the single largest steel project in Canada’s history.

In 2016, ArcelorMittal began a multi-billion-dollar operation to expand operations at its northern Quebec steel plant and begin production of “Green steel”.

ArcelorMittal’s plan has received a generous $450m in federal and provincial funds to build a new building that will produce the metal lighter, stronger and blemish-free.

Canada has set a goal of producing 1.4m tonnes of Green steel by 2025 and forecasts a market for the material in the tens of millions of tonnes per year within a decade.

A survey by ARC Financial found 3,866 Canadian steel mills, automotive companies and other manufacturers tested it in 2017. But the dark side is that there are many open questions as to whether this could ever become a mainstream material.

There is little understanding of Green steel among those who spend the time analysing steel supplies, said Kevin Hamilton, a steel analyst at ARC Financial.

Canadian taxpayers will pay for this experiment, with ArcelorMittal picking up at least $1bn in project costs, the government of Quebec paying for an engineering report, and the provincial government promising to spend an additional $1bn on local business training programs, a source close to the project said.

“We think it’s important, but I think it will take time. But if it becomes the most popular steel in the world it’s possible there will be a significant shift of usage away from European and US-sourced Steel,” said Enright.

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