Canada Strikes Back at Trump, and Condo Buyers Will Pay the Price

(Bloomberg) -- Condo buyers in Canada's already pricey markets may be the next to pay up as the trade battle with the U.S. radiates through the construction industry.

Canada imposed a 25 percent tariff on U.S. steel imports on July 1, retaliating against levies President Donald Trump slapped on goods from its northern neighbor a month ago. Prime Minister Justin Trudeau's government is also said to be preparing quotas and tariffs for other countries to prevent a flood of steel rushing in to undercut prices.

Steel fabricators and metal importers say the tariffs will jack up prices for everything from rebar used in high-rise condos to structural steel for industrial builds in a market already facing shortages and soaring prices. Job losses and stalled projects are likely, they said.

“If the government's not careful, they will protect one at the expense of ten times that elsewhere,” said Walter Koppelaar, chief executive officer and chairman of Walters Inc., a Hamilton, Ontario-based steel construction company that counts Brookfield among its customers. “If they apply duties to broad-spectrum steel or metal of any shape, size or description, our industry here would be decimated -- it could be thousands of layoffs and it's going to shut down projects right across this country.”

Supply Shortages

The comments underscore the widening impact of Trump's move to upend the world trade order to get what he deems is fairer access to international markets and to protect domestic jobs. He's pledged tariffs on $50 billion worth of goods from China and imposed levies on imports of steel and aluminum from Canada, Mexico and the European Union. Each region has struck back with countermeasures or is planning tariffs of their own.

The price of steel used for construction projects across the country has already soared by about 38 percent in 2018 due to a booming property market and a lack of supply, according to the Canadian Coalition for Construction Steel which represents 17 companies.

“Additional safeguard surtaxes of even 10 percent will put fabricators and purchasers into a loss position and they will not be in a position to supply the market,” according to a letter sent by the group's representative to the government.

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Further measures would be “catastrophic,” Koppelaar said. Canadian suppliers, including AltaSteel and ArcelorMittal Dofasco, typically produce only about 10 percent of the structural steel and about half of the rebar supply in the industry, he said.

Even though global steel tariffs haven't been confirmed, Ferrostaal Steel Canada Inc., a rebar importer whose parent company is Hamburg-based Ferrostaal Trading GmbH, isn't signing new contracts for now because it doesn't know what its prices will be.

“The margins are so slim on steel imports that you can't just absorb a 25 percent tariff,” Tim McMenamin, vice president at Whitby, Ontario-based Ferrostaal, said by phone. “We're not even offering steel into Canada because we are the importer of record so if all a sudden, there's a surtax of 10 to 25 percent, that could create bankruptcy for trading companies such as ours.”

Wider steel quotas or tariffs would hit British Columbia hard as the province has historically relied on imports for more than 60 percent of its annual consumption, according to the Coalition.

Small Percentage

“If they put this quota or tariff on imported materials, we will have no supply,” Anoop Khosla, president of Midvalley Rebar Ltd., said by phone. The Surrey, B.C.-based rebar fabricator and installer sources more than half its supply from offshore countries such as Turkey, Vietnam and Indonesia. “We would have shortages of material come September, October.”

The strain would hit a condo market that saw prices soar 8.3 percent in Toronto in May from the year before and 20 percent in Vancouver. Some projects have already been canceled due to rising costs.

To be sure, rebar supply typically only represents about 4 percent of a project's cost so a 25 percent tariff would only result in about a 1 percent increase in the cost of a building, according data to provided by Altus Group Ltd. Still, the increases are likely to be passed on, Altus said.

Developers aren't too concerned so far.

Red Ink

“On the jobs that we've done, we have already tendered the deal so those prices are locked in,”Geoffrey Matthews, senior vice president of high rise at Great Gulf Group, said by phone. On upcoming developments like the Gehry project in downtown Toronto, the company would likely apply a high contingency against costs at the early stages to manage potential risks, he said.

Koppelaar at Walters is forecasting a further jump in steel prices of as much as 30 percent if the wider tariffs go through.

“It's well beyond just that projects will be done at zero profit and well into the fact that we're going to bleed red ink and different companies will have different capacities for how long they can bleed before they die,” Koppelaar said.

To contact the reporter on this story: Natalie Wong in Toronto at nwong133@bloomberg.net

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net, ;Daniel Taub at dtaub@bloomberg.net, Chris Fournier

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