Finance Committee on June 12th, 2019

[Catherine Cobden]

Some producing nations continue to add capacity, so there's a growth in their capacity, yet there's not the equivalent growth in the demand at a global level.

Do you want to add more?

[Ken Neumann]

I always use this example. You have China, which produces 1.2 billion tonnes of steel. It consumes roughly 800 million tonnes. I always tell people that if anybody thinks they're going to take that excess capacity of 300 million tonnes and put it in their boneyard for the next order, it ain't going to happen.

I had the opportunity as a youngster to work at a steel mill in my first job off the farm, so I know a bit about the steel industry. I toured a facility in China. It was called Baosteel. Baosteel at one facility produced more steel than all of Canada did, more steel than all of Canada put together did. I go back five or six—

[Michael McLeod, Liberal, Northwest Territories, NT]

How many producers do they have there?

[Ken Neumann]

China has a lot of producers. They're all subsidized and they don't play by the rules. That's the issue. The fact is that they want to get rid of their steel in order to get some currency. That's the difficulty.

As I said earlier, this has been a global problem for some time. This is where the major players—the United States, Mexico, Canada, the European Union and all those folks that play by the rules—need to come together. We're having the same problem with the fluctuation of dumped aluminum. It's hurting the Rio Tintos and the other companies there, as well.

It's the cheaters that you have to deal with. That's why mechanisms such as this are important, to send a message. The fact is we're not going to put up with it anymore. If you're going to play by the rules, play by the rules.

[Michael McLeod, Liberal, Northwest Territories, NT]

It was mentioned here that Bill C-101 is the first step. When I come back in two years, I'm going to be dealing with further steps. Could you explain again what the expectation there is? I didn't really understand that.

[Catherine Cobden]

If I may, Bill C-101 removes a barrier to implementing safeguards right away, not in two years but immediately. What the bill says, before this amendment is put in place, is that you must wait two years before you can do safeguards again for the same product. What this amendment does is to give the government the flexibility to not have to wait that two-year period. By then, the industry will be gone if this stuff is flooding in like this.

We as an industry need more responsiveness, and we're glad that you as a government are putting a tool in place to be responsible.

[Michael McLeod, Liberal, Northwest Territories, NT]

That will be when I come back in two years.

[Voices]

Oh, oh!

[Catherine Cobden]

No, we'll be ready to use it much sooner than that. We're going to need it soon.

[Michael McLeod, Liberal, Northwest Territories, NT]

Is there any chance of this bill violating Canada's obligations under the WTO's agreement on safeguards?

[Catherine Cobden]

This legislation does not violate the WTO rules. It's a change to Canadian legislation.

[Michael McLeod, Liberal, Northwest Territories, NT]

That's it.

[The Chair, Liberal, Wayne Easter]

Michael, I will give you an on-the-ground example of the volatility that Mr. Bunch was talking about.

I have a couple of steel fabrication plants in my riding in Prince Edward Island that do a lot of steel framing in the U.S., but this relates to a company that brings in rolls of roofing steel. They press those rolls into flat roofing sheet steel. This example is for a dairy barn.

From the time a dairy barn was priced a year ago April until the steel went on the roof about September, the additional cost to that producer—and they had to negotiate a settlement—was $250,000. That was the volatility in the market. That's not a huge farm operation.

Somebody has to eat that cost, either the person who's doing the building, the contractor, the farmer or the guy who brought in the steel and pressed it into sheets. That's what it means on the ground, even for producers, so it's not just at your end where we see the problem. It's at the end-user level as well.

[David McHattie]

I wanted to share another volatility. We are producing products for energy tubulars. A nine-month period of time followed the investigation in the United States on section 232 where we had a 71% increase in non-mapped imports of energy tubulars. That was an increase from more than 20 countries.

These were countries like Austria—or pick a country that no longer had the same access to the United States—and instead of producing less at home and probably putting some people unemployed at home, they decided to continue to export to Canada. That put pressure on us in the Canadian market where we had to have layoffs.

This volatility has negative impacts on jobs at home as well, never mind the price impacts. I think it's important that we understand that having this tool makes sure that if there's another surge like that, the finance minister has a tool available to defend Canadian jobs so we aren't laying off people in Canada to protect the jobs of those foreign producers who are not willing to shrink to market size if they are going to continue to export.

[The Chair, Liberal, Wayne Easter]

Thank you very much for that, Mr. McHattie.

Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

Mr. White, obviously one of the threats was a 25% auto tariff that was the nuclear option there. We never saw it. I'm assuming you guys are feeling much better about that right now.

My question is around supply chain. Obviously, while the tariffs were on steel and aluminum, this was a concern because it was adding prices to already fixed contracts and a whole bunch of stuff. I had a chance to tour the Chrysler plant last summer in Windsor.

Obviously, those aren't safeguards. It's different. Talk to me about your supply chain as it relates to dealers, and what's going on in pricing and components and all that. I'm assuming most of it has been worked out; it's been a very volatile 12 months

[John White]

Sure.

That's a great question.

First of all, we're extremely grateful that we were able to dodge the bullet on auto tariffs because, yes, for sure, that was the nuclear option. That would have been devastating. It was the number one preoccupation for our dealers.

In terms of the supply chain itself, our supply chain of automobiles and trucks has not been disrupted.

I want to talk about the cars, and then I want to talk about our facilities. We're fortunate on one hand that cars aren't spot priced. We have fluctuations in currency. There are the fluctuations that the manufacturers have with their raw materials. Fortunately, from that perspective, we're not subject to immediate impact. What happens with regard to the prices is that the cost pressure builds, and eventually your OEM has two choices: eat the price or pass it on.

One of the things that our members are faced with today is that it's an expensive business to be a car dealer. Your inventory is a high cost. It's your number one cost to carry that inventory. The inventory does not belong to the manufacturer. It belongs to the dealership.

So, we did not see a disruption in those chains. There are some manufacturers that did increase their prices; therefore, those prices are passed on to the consumer. However, if your inventory price goes up, your floor planning costs go up, etc.

The other effect on our members is from a facilities perspective. We were listening to Mr. Easter talk about the cost of a roof and a price increase of $250,000. Last year, one of our members sat with me—really, where Oumar is sitting today—and he was investing, in Oshawa and in Clarington, $30 million in his new Audi facility and his RV facility.

Do you remember him?

[Dean Allison, Conservative, Niagara West, ON]

You were here with the committee. I remember that.

[John White]

I was here for the committee. Mr. Verwey was beside me. They could not predict the price of his steel. He was getting fluctuations in price and in cost. At the end of the day, he faced, at one point, a 35% cost increase on his prices because of the volatility that was out there.

Multiply that out by renovations that are being made in the small communities. One instance is right in Charlottetown with the new Mitsubishi store. You're seeing them happen in Peterborough and in Cochrane, Alberta, where you're from—you're familiar with our Mr. Baum out there—and that's a real problem.

In summary, we've dodged the bullet. We don't want to face it again. We need certainty. We need price certainty. We need cost certainty. The price of cars and consumers.... It's very elastic. The price goes up; volume goes down. That's Economics 101. It is a concern to our members.

Again, we thank you for having helped us dodge that bullet. Hopefully, this bill will enable us to do it again.

[Dean Allison, Conservative, Niagara West, ON]

Whatever happened to that dealer? Did he ever make the investment?

[John White]

Absolutely, he did, yes. He has since opened both at a much greater cost than he had anticipated. If any of you are driving down the 401 in the Whitby area and Clarington area, you will see two huge facilities, $30 million of investment from what, once upon a time, was a small ma-and-pa operator.

[Dean Allison, Conservative, Niagara West, ON]

Good.

I have a question about the price of steel these days. I know that with tariffs it was up 25%. Even if there wasn't a tariff effect, just because of where it.... I've talked to some fabricators.

Mr. Bunch, maybe this is for you and also for Ms. Cobden.

I understand that the price has started to come back down again. It's probably still up slightly, but it's not at the 25% level that it was. It seems to be that things are starting to get regulated off and to find some stability.

Can you confirm for me where we're at in terms of the price of steel?

Go ahead, Mr. Bunch.

[Chad Bunch]

It has stabilized more. From 2017 to 2018, we were seeing price increases for plates of, I don't know, 54% to 60%, that sort of thing. For angle, channel or flat bar grating, it would be more in that 30% range. From this year, 2018 to 2019, it has kind of stabilized, so I haven't seen those kinds of jumps.

[Dean Allison, Conservative, Niagara West, ON]

Have you seen prices come back as well?

[Chad Bunch]

They have been lower in some cases, yes.