Canada's Steel and Aluminum Sector: Fortifying Against Trade Storms and Seizing Strategic Gains

The U.S.-Canada trade war over steel and aluminum has escalated in 2025, with tariffs reshaping supply chains and sparking retaliatory measures. Amid this turbulence, Canada's steel and aluminum sector is navigating a path toward resilience through strategic tariffs, procurement reforms, and infrastructure investments. For investors, this volatile landscape presents opportunities to capitalize on domestic priorities and global trade realignments. Let's dissect the key dynamics and equities poised to benefit.

The Tariff Tango: Retaliation and Reciprocity

Since February 2025, Canada has imposed 25% retaliatory tariffs on $29.8 billion of U.S. goods, targeting steel, aluminum, and autos. Unlike blanket protectionism, these tariffs are strategically limited to non-CUSMA-compliant imports, shielding supply chains critical to North American integration while punishing U.S. overreach. The March 12, 2025, expansion of tariffs to autos underscores Canada's resolve to counter U.S. unilateralism.

By June 2025, these measures remain in place, with Canada's steel prices rising 30% and aluminum prices up 15%—a direct boost for domestic producers. Yet the sector isn't immune to risks. U.S. tariffs have cut Canadian steel exports by 30% since January, forcing companies to diversify markets or rely on domestic demand.

Procurement Policies: A Domestic Shield

The game-changer for Canadian steel and aluminum is Ottawa's June 30 procurement mandate, requiring federal projects to prioritize Canadian-made materials or those from “reliable trading partners.” This policy, part of a $10 billion liquidity support package, creates a guaranteed market for domestic producers. Key beneficiaries include:

1. Infrastructure Plays:
2. National Shipbuilding Strategy (NSS): The government has awarded $6.4 billion in contracts to Seaspan Vancouver Shipyards and Chantier Davie Canada for polar icebreakers. These vessels, featuring advanced Arctic capabilities, will dominate supply chain demand for high-grade steel.

3. **Text2img>A rendering of Seaspan's new polar icebreaker under construction at Vancouver Shipyards

4. Defence Modernization: Contracts for naval vessels and Arctic infrastructure will favor firms like ThyssenKrupp Marine Systems Canada, leveraging local steel for national security projects.

5. Steel Producers:

6. Algoma Steel (ALGOMA): Despite temporary U.S. shipment suspensions, its $1.2 billion modernization project positions it to supply the NSS and domestic auto sector.
7. Stelco (STC.TO): A key supplier to Canada's automotive industry, it benefits from reduced U.S. competition and federal procurement rules.

Supply Chain Resilience and Strategic Partnerships

Canada's Icebreaker Collaboration Pact with Finland and the U.S. highlights its strategy to bolster Arctic sovereignty through technology sharing and local production. Finnish expertise in ice-resistant hulls and Canadian steel combine to create a competitive edge. Meanwhile, the Steel and Aluminum Task Forces—monitored by Ottawa—ensure real-time adjustments to global trade shifts, such as China's aluminum overcapacity or EU countermeasures.

The sector's embodied carbon standards, now mandatory for federal projects, also favor companies investing in green production. Dofasco, part of the Hevra Steel Group, has already retooled its operations to meet these criteria, positioning itself as a leader in sustainable steel.

Investment Implications: Playing the Long Game

1. Equities to Watch:
2. Seaspan Corporation (SSH.TO): Its icebreaker contracts and exposure to Arctic infrastructure projects make it a top play for shipbuilding demand.
3. Algoma Steel (ALGOMA): A near-term bet on domestic procurement and liquidity support, though its U.S. market dependency remains a risk.

4. ETFs: The iShares S&P/TSX Capped Materials Index ETF (XRB) offers broad exposure to Canadian materials stocks.

5. Risks and Caution:

6. Global Overcapacity: China's aluminum output and U.S. tariff reversals could depress prices.
7. Geopolitical Volatility: Ongoing U.S.-Canada negotiations could lead to phased tariff reductions, altering supply dynamics.

Conclusion: Betting on Resilience

Canada's steel and aluminum sector is at a crossroads. While U.S. tariffs threaten export volumes, domestic procurement policies and strategic infrastructure projects are creating a safety net. Investors should focus on companies with direct ties to federal contracts (like Seaspan and Stelco) and sector ETFs for diversified exposure. The Arctic icebreaker boom and green standards offer long-term tailwinds, but investors must remain agile to navigate ongoing trade negotiations. For now, Canada's strategy of “buy local, retaliate smartly” positions the sector to weather the storm—and even thrive in the trade war's aftermath.

Final Tip: Monitor the July 21, 2025, review of Canada's tariff rate quotas. A reduction could signal easing tensions—or open new opportunities.