COVER STORY driving Canadian customers back to the U.S. just when Canada is seeking to make its retaliation against U.S. tariffs as effective as possible. IMPACTONCONSTRUCTION At the end of the day, a final resolu- tion that’s satisfactory to the country’s steel and construction industries seems distant. Meanwhile, the construction industry in Canada has already been heavily affected by the tariffs that have been in place since last summer. “The impact on the industry from the tariffs are increased costs and project delays,” says Mary Van Buren, president of the Canadian Construction Association (CCA). “Anecdotally, we have heard of some hoarding behaviour as people are understandably trying to manage the risk and uncertainty.” Van Buren adds that Atlantic Canada and B.C. are more heavily affected because their traditional suppliers have long been U.S.-based. The Canadian construction industry on the whole imports 50 to 75 per cent of its steel from the U.S., says Whalen. Rebar for the concrete industry is about 50 per cent U.S. in origin, while for structural steel the figure is 70 to 75 per cent. Long before the tariffs were actually imposed, Whalen was already seeing price jumps in the construction industry. “Even before May 31, we saw increased prices in construction,” he notes. “As early as February, U.S. steel mills started to ramp up their prices. In effect, Canada is a domestic purchaser, if you will, from U.S. steel mills, so our prices went up.” Prices for steel across the board rose by 18 to 25 per cent, and the persisting impactofthishasbeenvolatilityinprices as companies across North America try to determine “how high can they go, how low they need to be,” Whalen says. The countervailing Canadian tariffs on U.S. steel and aluminum have only made things worse, Whalen continues. “In some products we’re not just seeing that 25 per cent tariff; the Canadian tariff had the effect of allowing those prices to jump another 25 per cent – a double whammy.” If there’s a silver lining, it’s that for at least one steel product heavily used in construction, there is no domestic Canadian supplier and the Canadian counter tariff doesn’t apply. “You can’t put a counter tariff on another country unless you have a domestic supplier of that product,” Whalen says. “Canada has no steel mills that produce wide-flange beams, and structural steel buildings are primarily built out of wide-flange beams. So we can bring them into Canada without the Canadian tariff. Our counterparts in concrete or rebar aren’t so lucky.” PERFECTSTORM WalterKoppelaar,CEOandchairmanof Walters Group, a commercial and indus- trial steel construction company based in Hamilton, Ontario, says the tariffs and counter tariffs have been a “perfect storm” of handing pricing power to steel mills around the world. He feels that steps to support the mills are misguided, as price rises of 25 per cent or higher are a boon to any industry. “It starts with mills in the U.S., then Canadian mills follow suit – and then European mills aren’t going to swallow a discount in North America if they don’t need to,” comments Koppelaar. “We’ve seen price increases of 50 to 60 per cent.” In a relatively low-margin industry like construction, the effect can be catas- trophic. Koppelaar notes that as a very rough average, about a third of a struc- tural steel project’s cost is accounted for by materials. Add to that the fact that in many cases radical increases in steel prices occurred after construction companies had submitted winning bids based on earlier, lower prices. Those companies had to follow through with projects that, as a result of the tariffs, became de facto money-losers. Koppelaar says this has put many currentprojectsunderwater,andwhileit does make the industry less competitive, he believes the market will ultimately correct the problem as construction companies enter new contracts that incorporate the new pricing. Whalen also strikes a somewhat optimistic note, referencing industry talk about the introduction of possible quotas on steel. He expects the U.S. might push for a maximum annual steel quota from both Canada and Mexico, with a tariff applied on amounts over that quota. “I expect Canada will go along with this approach, given a fair quota level,” he says. “I also expect the quota will allow for some limited growth over current levels – similar to what was done in the USMCA with automobiles.” “This is speculation of course,” he adds. “Anything can happen – as we have seen in the past.” |BD CANADIAN SURTAX On October 25 Canada imposed a25percentsurtaxonsevensteel products from global suppliers in an attempt to avert the threat of dumping. The surtax will be in place for 200 days, pending an inquiry by the Canadian International Trade Tribunal to examine whether longer lasting safeguards are required. The seven products impacted are: • Heavy plate •  Concrete reinforcing bar (rebar) • Energy tubular products • Hot-rolled sheet • Pre-painted steel • Stainless steel wire • Wire rod Builders' Digest Quarter 3 2018 | 19