Navigating the Steel Industry's Crossroads: BMO's Lending Policies and the Resilient Future of Canadian Metals

The Canadian steel industry stands at a pivotal juncture. As U.S. tariffs on Canadian steel and aluminum escalate tensions, financial institutions like the Bank of Montreal (BMO) are recalibrating their risk profiles. BMO's recent lending policy adjustments—reducing total debt service (TDS) ratios for self-employed steel and aluminum workers and classifying these sectors as “Limited Appetite Industries”—signal a broader economic recalibration. While critics argue such moves risk exacerbating sectoral fragility, the policy shift also underscores an opportunity to pivot toward resilient investments in critical minerals and industrial metals.

The BMO Policy Shift: Prudent Risk Management or Economic Signal?

BMO's decision to lower the TDS threshold for steel and aluminum workers from 44% to 42% is a calculated move to mitigate exposure to trade-related income volatility. By reducing mortgage eligibility for self-employed borrowers in these sectors, the bank aims to ensure households retain financial flexibility amid potential earnings shocks. This aligns with Canada's broader response to U.S. tariffs, which have triggered retaliatory measures and disrupted long-standing supply chains.

The inclusion of steel and aluminum in BMO's high-risk category reflects a strategic recalibration of risk appetite. While the bank emphasizes that individual loan assessments remain case-by-case, the policy's symbolic weight cannot be ignored. It highlights the sector's vulnerability to geopolitical shifts, particularly as Canada's mining and manufacturing industries grapple with the dual pressures of tariffs and inflation.

Tariff Tensions and the Steel Sector's Precarious Position

The U.S. tariffs—initially 25% on Canadian steel and aluminum, with proposed hikes to 50%—have sent shockwaves through North American supply chains. For a sector where over half of Canada's mineral production is exported to the U.S., these barriers threaten to erode competitiveness. Industry leaders warn of job losses and capital flight, while analysts project a potential 2.5% GDP contraction by early 2026.

The Canadian government's response—temporary tax deferrals and a new financing facility—provides short-term relief but fails to address systemic vulnerabilities. Meanwhile, banks like BMO are tightening credit, further constraining liquidity for small and medium-sized enterprises (SMEs) in the sector. This creates a paradox: while policymakers and financiers aim to stabilize the industry, their actions may inadvertently accelerate its decline.

Critical Minerals: The Path to Resilience

Amid this turbulence, the critical minerals sector emerges as a beacon of opportunity. Unlike steel and aluminum, which are heavily exposed to U.S. tariffs, critical minerals like uranium, rare earth elements (REEs), and nickel are less susceptible to short-term trade disruptions—and are increasingly vital for clean energy and defense technologies.

1. Uranium: A Geopolitical Hedge
Cameco Corp (CCO) has seen renewed investor interest as a “safe haven” asset. With global uranium demand surging due to nuclear energy's role in decarbonization, Cameco's Saskatchewan-based operations position it to benefit from both supply constraints and strategic stockpiling. The company's recent partnerships with U.S. firms to secure long-term supply chains further insulate it from tariff risks.

2. Rare Earth Elements: Diversifying Supply Chains
Canada's Saskatchewan Research Council (SRC) is leading a critical minerals renaissance. By producing high-purity neodymium-praseodymium metals and partnering with U.S. firms like REalloys, Canada is positioning itself as a key player in the REE market—a sector dominated by China. Projects like Rio Tinto's Sorel-Tracy scandium plant and Geomega's Saint-Bruno rare earth recycling facility highlight Canada's potential to become a North American hub for rare earth processing.

3. Nickel and Cobalt: Battery Metals with Long-Term Legs
The global shift to electric vehicles (EVs) is driving demand for nickel and cobalt, with Canadian producers like First Quantum Minerals and Glencore well-positioned to capitalize. Unlike steel, these metals are less tied to U.S. tariffs and more aligned with global green energy trends.

Strategic Investment Opportunities

For investors, the key lies in diversifying exposure across sectors with asymmetric upside. Here's how to navigate the landscape:

• Short-Term Play: Focus on uranium and REE producers with low geopolitical risk and strong U.S. partnerships. Cameco and SRC-backed ventures offer defensive characteristics.
• Mid-Term Bet: Invest in nickel and cobalt miners with access to North American refining capacity. Teck Resources' pivot to Asian markets underscores the importance of supply chain flexibility.
• Long-Term Outlook: Support policy-driven initiatives like Canada's Mineral Exploration Tax Credit (METC) and cross-border collaborations under the U.S.-Canada Joint Action Plan on Critical Minerals. These frameworks will shape the next decade of resource investment.

Conclusion: Resilience Through Diversification

BMO's lending policies and U.S. tariffs have exposed the fragility of Canada's steel industry. However, this crisis also highlights the urgency of pivoting toward resilient sectors. Critical minerals and industrial metals—particularly uranium, rare earth elements, and battery-grade nickel—offer a path to economic diversification and long-term growth. For investors, the challenge is not just to weather the storm but to build portfolios insulated from geopolitical volatility.

In an era of trade uncertainty, the winners will be those who see risk as an opportunity—and act accordingly.