Steel Opportunities in a Volatile Trade Landscape: Why Canadian Producers Are Poised to Profit

The U.S.-Canada trade relationship is undergoing seismic shifts as Section 232 tariffs and geopolitical tensions reshape North American supply chains. For Canadian steel producers like Algoma Steel (ASTL) and ArcelorMittal Dofasco, these disruptions present both risks and opportunities. Amid rising U.S. protectionism and supply chain reshuffling, companies that pivot toward sustainability, diversify trade relationships, and align with federal procurement policies are well-positioned to thrive. Here's why investors should pay attention—and where to place bets.

The Tariff Volatility Factor: Challenges and Catalysts

The U.S. has weaponized tariffs to secure domestic steel production, imposing a 50% Section 232 tariff on Canadian steel imports (excluding the UK) as of June 2025, layered on top of a new 35% tariff on Canadian goods effective August 1. While these measures strain Canadian exporters, they also incentivize companies to innovate and localize supply chains. For instance, Canadian producers now account for 94% of U.S. aluminum imports, underscoring their irreplaceable role in critical industries like automotive and construction.

However, the path forward isn't without risks. Prolonged trade conflicts could disrupt cash flows, while overreliance on U.S. demand leaves firms vulnerable to tariff fluctuations. Investors must balance these risks against strategic advantages.

Algoma Steel (ASTL): Betting on Green Steel and Operational Resilience

Algoma Steel (NASDAQ: ASTL) is a poster child for adaptation. The company is mid-way through a $1.7 billion transformation to replace its coal-dependent blast furnace with electric arc furnaces (EAF), reducing carbon emissions by 70% and positioning it as a leader in low-carbon steel production. This shift is critical for two reasons:

1. Federal Procurement Tailwinds:
   Canada's infrastructure spending—$30 billion allocated to green projects through 2026—requires materials that meet stringent sustainability criteria. Algoma's green steel will be a priority for government contracts, from EV battery plants to offshore wind farms.

2. Cost Efficiency:
   EAF technology uses scrap metal, making it less sensitive to global raw material price swings. Algoma's Q2 2025 milestone—first steel production from its new EAF—bolsters confidence in its ability to offset tariff costs.

Despite Q1 2025 losses linked to tariff impacts, Algoma's financial discipline—$226.5 million in cash reserves and a $360 million credit facility—supports its transition. The dividend, while modest, signals stability.

ArcelorMittal Dofasco: Partnering with Governments to Secure Demand

ArcelorMittal's Canadian subsidiary, Dofasco, is leveraging public-private partnerships to insulate itself from trade volatility. Its $1.8 billion collaboration with Ontario to convert its Hamilton plant to green steel production—funded in part by a $500 million government grant—highlights its strategic alignment with federal priorities.

• Local Content Requirements:
  Ontario's push to build an EV supply chain mandates local steel sourcing. Dofasco's high-strength automotive-grade steel is a direct fit, securing demand for its products.
• Diversification Beyond the U.S.:
  While the U.S. remains a key market, Dofasco is expanding into Mexico and Europe, where ArcelorMittal's global footprint mitigates reliance on any single region.

The company's focus on sustainability also aligns with the EU's Carbon Border Adjustment Mechanism (CBAM), which penalizes high-carbon imports. Dofasco's low-emission steel could gain a pricing edge in European markets.

Risks to Monitor: Trade Wars and Overcapacity

Investors must remain vigilant:
1. Prolonged U.S. Protectionism: If tariffs remain elevated past 2025, Canadian producers may struggle to pass costs to customers.
2. Global Overcapacity: China's steel exports, now 30% cheaper than U.S. benchmarks, could flood markets if trade barriers ease.
3. Supply Chain Fragmentation: The U.S. auto industry's shift to vertically integrated “megafactories” (e.g., Hyundai's Georgia plant) risks bypassing traditional steel suppliers.

Investment Thesis: Selective Longs in Sustainable Steel

Canadian steel equities are a compelling play on geopolitical trade realignments, but investors should be selective:

• Long Algoma Steel (ASTL) for its EAF-led transition and balance sheet strength. The stock offers a leveraged position to rising demand for green steel and federal infrastructure spending.
• Watch ArcelorMittal (MT) for its global diversification and Dofasco's government-backed projects.

Caution: Avoid companies overly reliant on U.S. automotive demand, which faces structural shifts toward reshored production.

Conclusion

The Canadian steel sector is at a crossroads: tariffs are a threat, but also a catalyst for innovation. Companies like Algoma and ArcelorMittal Dofasco that prioritize sustainability, diversify trade partners, and tap into federal spending stand to profit as North America's supply chains reinvent themselves. For investors, this is a high-risk, high-reward sector—best approached with a long-term horizon and a close eye on trade negotiations.

Consider these equities a strategic bet on the future of manufacturing in a protectionist world—but brace for volatility.