Good morning.
The Groupe Proco is a general and specialist contractor with a head office located in Saint-Nazaire, in Saguenay—Lac Saint-Jean, Quebec. In total, the Groupe Proco has 325 employees on different construction sites in Quebec.
Our main raw material is steel. Each year, we buy around $20 million worth of steel from the United States, from Canada and from Europe. Our sales come to $85 million. We have two main operations. The first is a construction company that installs metal structures. The second is a manufacturing company that mostly manufactures steel structures, bridge structures, welded products and industrial structures.
The customs tariffs imposed in recent months first had a direct consequence on the price of our raw material, especially for projects requiring the rapid supply of plates that are relatively thick and long. Historically, these plates come from the United States, where they are available with a short delivery time. In recent months, the price of that raw material went from $0.60 per pound to $1 per pound in August 2018. This is an increase over and above the 25% in surtaxes, because it results from a combination of factors, including a decrease in the stock of raw material caused by the uncertainties of a trade war. In Quebec, the steel market has reacted to this new reality, and the price of steel coming from Europe is now similar to the price of American steel. Shaped steel structures have gone from about $0.50 per pound to $0.65 per pound.
We are also seeing direct impacts on the profitability of our contracts. We complete between 80 and 100 contracts per year, almost all of them requiring steel. We signed contracts last April, May and June on the basis of the price of steel at the time. The steel for those contracts arrived in Canada after July 1, and we had to absorb the increased costs of this raw material, without being able to recover them from our customers. This meant significant and direct financial losses for our company in the order of several hundred thousand dollars. Of course, we explored the possibility of being compensated through a surtax refund request but, at first sight, it seems difficult to do so because the increase in the price of steel is not solely due to the tariffs. In addition, Canadian distributors are hesitant to provide us with the exact amount they paid in surtaxes because, in so doing, they would reveal their cost price and their profit margins.
There have also been implications on large development projects in Canada. We regularly assist a number of major project developers to determine the construction budgets for their future projects. I am thinking of mining projects like Mason Graphite, Arianne Phosphate, Rio Tinto Alcan, Métaux BlackRock and Nemaska Lithium, and of the Réseau express métropolitain (REM) project. All those projects have a major use of steel in common. The budgets that we have developed with those clients and submitted in recent years are now all underestimated. As you know, those budgets are used by the developers to establish the feasibility of their projects and to secure the financing they require. We are very much afraid that the cost increases in the supply of steel to Quebec and Canada will harm the implementation of projects like these that create jobs and wealth.
I must also mention the major adverse effects on the competitiveness of Canadian manufacturers. The world price of steel, in Asia, India and Europe, seems to be hovering around $0.60 per pound instead of $1. There is therefore a strong possibility, more likely a certainty, that the steel components in future major construction projects in Canada will be manufactured abroad, given the cheaper supply. The increased cost of steel in Canada will force developers of major projects to go to foreign suppliers despite the significant capacity of Canadian manufacturers. We are already hearing some developers raise this possibility. Given this possible threat, and if the situation surrounding the price of steel does not change, we will have no other choice but to consider moving our production to a location where steel is more easily available.
Thank you very much.