Stelco halts US orders, focuses on Canada amid tariff

Canadian flat-rolled steel producer Stelco plans to focus on strong domestic demand to boost shipments as it migrates away from exports to the US following the US Section 232 tariff.

"We are actively focused on increasing domestic sales as a means of taking advantage of market opportunities that we believe the current trade environment presents," Stelco chief financial officer Don Newman said.

The Ontario-based steelmaker has stopped taking orders from the US and expects to eliminate its exposure to the US resulting from existing contracts by the second quarter of 2019.

Stelco previously shipped around 20pc of its volume, or about 500,000-600,000st/yr of primarily hot-rolled coil (HRC), into the US.

The company expects stronger sales at home, driven in part by government action against imports, to drive "significant growth" in fourth-quarter shipments at "stable prices" after shipments were limited in the third quarter by a planned three-week hot-strip mill outage.

The increased focus on Canada comes after the Trudeau administration last month imposed new tariffs and quotas on foreign steel products to address rising imports resulting from the displacement of global steel flows in the wake of the US 25pc tariff on imported steel.

Canada in July also imposed a retaliatory tariff on US steel producers and continues to investigate imports of sheet products from China, South Korea, Vietnam and elsewhere for dumping.

Stelco shipped 586,000st in the quarter, a 43pc increase over shipments of 411,000st in the same period a year earlier.

Hot-rolled coil (HRC) drove the increase on the quarter, rising to 446,000st from 299,000st, while coated steel shipments ticked up to 82,000st from 78,000st.

Stelco shipped 19,000st of cold-rolled steel, up from 12,000st. Shipments of other products rose to 39,000st from 22,000st.

Volume rose even as a three-week outage at the company's hot-strip mill reduced production capabilities by around 150,000st.

The hot-strip mill is now in a position to accommodate production of advanced high-strength steels, the company said.

The average selling price increased to C$980/st (around $740/st) from C$793/st and is expected to remain stable in the fourth quarter as the Canadian market remains immune from the softening of US HRC prices.

Around 24pc of the company's third-quarter activity was subject to tariffs, resulting in an expense of around $39mn. Still, Stelco expects reduced shipments to the US to drive a "meaningful drop" in fourth-quarter tariff costs.

Increased shipments at higher prices helped Stelco swing to a profit of C$123mn on sales of C$619mn in the third quarter from a loss of C$13mn on sales of $336mn in the prior-year period.

Stelco earned a profit of C$139mn on sales of C$1.8bn through the first nine months of the year. Profit in the same year-earlier period of C$3.6bn on sales of C$1.1bn was boosted by a $3.7bn gain related to the company's emergence from bankruptcy protection.

Stelco declined to say if or when it expects the tariffs to go away, even as the US, Canada and Mexico engage in talks over replacing the US Section 232 tariff with quotas.

"We're not sitting here relying on governments and waiting for what moods they wake up with and what political considerations they have," Stelco chief executive Alan Kestenbaum said. "Right now the status quo is very good for us."