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Stelco targets 'zero' exposure to US market

Nov 16, 2018 | 02:04 PM | New York | Muyao Shen

Tags  Canada, US, Section 232, HRC, HRC Index, Stelco, Muyao Shen

Stelco is concentrating on the Canadian market and is aiming for “zero exposure” to the United States by the second quarter of 2019 due to the Section 232 tariffs, top company executives said.

Net income totaled Canadian $125-million ($94.4 million) for the third quarter ended September 30, in contrast to a C$30-million net loss during the same period last year, on sales that jumped by 84.2% to C$619 million from C$336 million, the Hamilton, Ontario-based flat-rolled steelmaker said in its quarterly earnings report on Tuesday November 13.

The company’s third-quarter performance beat the rest of the industry by 7-18 percentage points, Stelco executive chairman and chief executive officer Alan Kestenbaum said during an earnings call on Wednesday.

“This is especially remarkable considering we are the only reporting company in North America subject to [the United States' Section] 232 tariffs,” he added.

The company paid about C$39 million in tariffs during the quarter, but Kestenbaum noted that “a meaningful drop” in tariff expenses is expected.

Canada imposed a retaliatory tariff on imports of US steel in July, after the US implemented 25% Section 232 tariffs against steel imports from allied countries, including Canada.

As a result of the tariffs, the steelmaker has been migrating business to its domestic market from the US. The company's revenue from the US market was C$180 million in the third quarter of 2018, representing 29.1% of the overall total, Stelco's earnings report shows.

“We’re not sitting here relying on governments and waiting for what moods they wake up with and what political considerations they have. We are taking our own action here by assuming [the new US-Mexico-Canada Agreement (USMCA)] is going to be here and ... we started to reduce exports - due to the tariff - as quickly as possible to zero,” Kestenbaum said.

The impact of the tariffs has also been offset by higher selling prices and increased shipments, he said.

Stelco shipped 586,000 net tons of steel in the third quarter of 2018, up 42.6% from 411,000 tons in the same period last year. Hot-rolled coil led the rise in shipments, increasing by 49.2% to 446,000 tons from 299,000 tons in the third quarter in 2017.

Average selling prices jumped by 23.6% year on year to C$980 ($740.30) per ton from C$793 per ton.

Fastmarkets AMM's daily US Midwest Hot-Rolled Coil Index was at $39.99 per hundredweight ($799.80 per short ton) on November 15, down by 12.8% from the nearly decade high of $45.84 per cwt in early July but still up 22.6% from $32.63 per cwt at the start of this year.

Stelco expects “significant growth in shipments, stable prices and increased earnings” for the fourth quarter versus the July-September quarter, Kestenbaum said, noting that he thinks the Canadian market might "improve" under the new USMCA deal.

“In fact, I believe as a result of the new [North American Free Trade Agreement], or USMCA, it is quite possible that the Canadian industrial markets we serve will actually improve its competitiveness and expand, giving us even more demand than just the void left by the retreating supply from the targeted sources,” Kestenbaum said.


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