Steel is the most used metal in the world and has been around for 4,000 years. It was used in weapons, tools, construction, and infrastructure.
In today’s world, its use is extensive, to say the least. From cutlery to skyscrapers, steel is almost everywhere around us.
And if you want to invest in this crucial metal, on which the bulk of the world’s infrastructure rests, the best Canadian steel stocks would be an excellent place to start.
What Do You Need To Know About Steel Stocks In Canada?
It’s important to note that almost all the iron ore mined in the world is used to make steel, and the most common type of steel – carbon steel which makes up about 90% of the world’s steel is over 97% to 98% iron, there is a virtually little actual distinction between steel and iron – The metal and its alloy.
So an iron ore company can be classified as a steel company since it’s focused on mining the core ingredient of steel.
The Global Steel Landscape
Even though China is gradually surpassing the US and other developed nations like Canada in several aspects, steel is something it dominated years ago.
In 2020, China produced more than ten times the steel than the next country in line (India), and Canada didn’t even break the top ten.
Moreover, seven out of ten largest steel producers globally are Chinese companies, and there is just one US company in the top fifteen.
Steel In Canada
Even though Canada produces a decent portion of the steel used in the country, the import penetration has been over 50% for most of the years between 2009 and 2019.
The bulk of the imports are from the US, and China and South Korea are next in line.
Best Canadian Steel Stocks
The steel industry in Canada is small, and it’s also quite diverse and includes many other businesses as well, like iron ore companies.
1. Stelco Holdings Stock (TSX)
- Ticker: STLC.TO
- Niche: Steel production
- Forward Dividend Yield: 3.25%
- Dividend Payout Ratio: 4.23%
- Dividend Yield (12-Month Trailing): 2.28%
- Upcoming Dividend Date: Dec 01, 2022
- Market Cap: $2.87 Billion
- Forward P/E Ratio: 11.38
- Average Analyst Rating: 2.4 - Buy
Stelco Holdings has been making steel for over a hundred years. It’s a proudly Canadian company that has gone through many phases, including an acquisition by US Steel.
Today, the company has the capacity to produce about two million tons of steel products each year. It’s pretty significant, even compared to the largest producer in Canada.
Stelco stock is relatively new as it only started trading on the TSX (as a public company) in 2017.
That kind of growth is usually a result of some macro triggers. In this case, the triggers were the post-pandemic market momentum.
However, if there are any issues with steel imports or the locally produced steel is prioritized, the stock can see robust growth. It also pays dividends, and the yield is reasonably healthy.
2. Algoma Steel Group Stock (TSX)
- Ticker: ASTL.TO
- Niche: Raw Steel production
- Forward Dividend Yield: 2.11%
- Dividend Payout Ratio: 1.40%
- Dividend Yield (12-Month Trailing): 1.94%
- Upcoming Dividend Date: Dec 30, 2022
- Market Cap: $1.10 Billion
The Sault Ste. Mari-based company has been producing steel since the beginning of the last century, but the stock has only recently joined the TSX (Oct 2021).
The company has about 2.8 million tons a year of raw steel production capacity.
The company is planning to expand this capacity to 3.7 million tons by 2024 by adopting a steel production method that is also significantly greener, i.e., electricity.
It’s switching from conventional steel making to electric arc. This change can significantly raise the ESG profile of the company.
The company can take significant advantage of the local demand if stricter import control protocols are implemented.
And once its electric arc conversion is completed, the company will become more productive and flexible and see lower costs.
3. Tree Island Steel Stock (TSX)
- Ticker: TSL.TO
- Niche: Steel wires
- Forward Dividend Yield: 3.17%
- Dividend Payout Ratio: 3.48%
- Dividend Yield (12-Month Trailing): 3.58%
- Upcoming Dividend Date: Jan 16, 2023
- Market Cap: $95.97 Million
- Forward P/E Ratio: 14.74
- Average Analyst Rating: 3.0 - Hold
It’s one of the largest producers of steel wire in North America. It caters primarily to the North American market, but some of its products are present in the international market.
It operates through seven brands and caters to four market segments (in the order of revenue generated): Industrial, residential, commercial, and agriculture.
But being a micro-cap stock has resulted in two powerful growth spurts in the last decade. One was between Oct 2011 to Oct 2016, when the stock grew over 1,100%, or more than 220% a year.
The second was the post-pandemic growth momentum which pushed the stock up 285% in less than two years.
4. Champion Iron Stock (TSX)
- Ticker: CIA.TO
- Niche: Iron ore mining
- Forward Dividend Yield: 4.57%
- Dividend Payout Ratio: 30.77%
- Dividend Yield (12-Month Trailing): 2.8%
- Upcoming Dividend Date: Nov 29, 2022
- Market Cap: $3.80 Billion
- Forward P/E Ratio: 8.63
- Average Analyst Rating: 2.2 - Buy
If we look at the market segment as a whole, Champion Iron is the largest company by market cap.
But as the name suggests, it’s not purely a steel stock. Instead, the company focused on the raw material, i.e., iron.
The company Champion Iron has 100% ownership in two other entities: Champion Iron Mines and Quebec Mines, with all their major projects and even exploration projects in Canada. However, the company is headquartered in Australia.
Unlike the steel stocks above, this stock has mostly gone upward since inception. If you had invested in the company when it started trading on the TSX (2014), you would have grown your capital by about 1,000% by early 2022.
5. Labrador Iron Ore Royalty Stock (TSX)
- Ticker: LIF.TO
- Niche: Iron ore royalty
- Forward Dividend Yield: 16.37%
- Dividend Payout Ratio: 91.90%
- Dividend Yield (12-Month Trailing): 9.02%
- Upcoming Dividend Date: Jan 26, 2023
- Market Cap: $2.48 Billion
- Forward P/E Ratio: 10.87
- Average Analyst Rating: 3.0 - Hold
If you are looking for gloved exposure to the steel/iron market, this stock might be the perfect pick. It doesn’t own any production facilities or steel mills.
Instead, this mid-cap company simply has about a 15% stake in the Iron Ore Company Of Canada, more than half of which is owned by Rio Tinto, the second-largest metals and mining company globally.
Labrador gets both royalties and commissions from its stake in this company. The main strength of the underlying company is the quality and grade of the iron pellets it produces.
6. Russel Metals Stock (TSX)
- Ticker: RUS.TO
- Niche: Metals distribution and processing
- Forward Dividend Yield: 5.50%
- Dividend Payout Ratio: 21.23%
- Dividend Yield (12-Month Trailing): 4.9%
- Upcoming Dividend Date: Dec 15, 2022
- Market Cap: $2.00 Billion
- Forward P/E Ratio: 10.34
- Average Analyst Rating: 2.7 - Hold
Russel Metals is the country’s premier metal distribution and processing company.
It sources the steel from both local manufacturers and foreign importers and processes and distributes it using its extensive network of 126 locations in both the US and Canada, in a ratio of about one to three.
The company makes the bulk of its revenue through its metal service centers, which primarily include cutting and levelling. It’s a reliable dividend stock and a cyclical growth stock.
7. Teck Resources Stock (TSX)
- Ticker: TECK-B.TO
- Niche: Mining company
- Forward Dividend Yield: 1.28%
- Dividend Payout Ratio: 3.43%
- Dividend Yield (12-Month Trailing): 0.77%
- Upcoming Dividend Date: Dec 30, 2022
- Market Cap: $28.20 Billion
- Forward P/E Ratio: 9.01
Tech Resources is a steel stock in a very roundabout way. It’s the second-largest seaborne exporter of steelmaking coal.
Steelmaking coal, also called metallurgical coal or coking coal, is a grade of coal that is used primarily in the steelmaking process, and the higher the grade, the more in-demand it is.
This is the largest revenue stream for the company, followed by copper.
Even though it’s not a pure steel stock, it’s tied to the market quite closely. More importantly, it has an international scope since it exports steelmaking coal to a major portion of the global steel industry.
Best U.S and International Steel Stocks
Apart from these seven best Canadian steel stocks, there are a few US and one international stock that you should know about. The tickers in the bracket are all for the NYSE market.
ArcelorMittal (MT) – The company is based in Luxembourg, but it has steel production facilities in about 60 countries and trades in multiple stock markets, including NYSE.
It’s the second-largest steel producer in the world, after the Chinese giant China Baowu Group.
The stock has offered cyclical growth in the last decade, but it’s a fraction of what it was before the great recession. It also pays dividends, but the yield is quite low.
Nucor (NUE): It’s the largest steel producer in the US and the largest steel recycler in North America.
It’s also quite environmentally focused and is perhaps one of the few producers around the globe that offers a line of fully net-zero carbon steel products. The stock has mostly gone up since its inception.
US Steel (X): It’s the second-largest steel producer in the US and was once the owner of the Canadian Stelco.
In its early days, the company used to produce more than two-thirds of the steel produced in the whole country. Now, it’s a mid-cap stock that trades at a fraction of its pre-recession value.
Investing In Steel Stocks – The Good And The Bad
The steel industry in Canada is highly consolidated. There are only a handful of players, and the bulk of the industry is dominated by foreign producers.
The imports are usually neck-to-neck with local production and are penetrating the market quite aggressively. There are a few upsides to investing in steel stocks:
- Canada has the sixth-largest iron ore reserves in the world, so it doesn’t have to rely on imports for the raw material
- There is enough local demand to keep the local producers engaged, especially if imports are reduced
- The demand for steel is expected to rise over time, especially for its use in the automotive industry
The downside of steel stocks might be a bit more pronounced than the upside:
- Countries are now focusing on wood for sustainable construction, especially for smaller structures
- Over two-thirds of the steel in North America is recycled, and since it’s one of the most recyclable metals, this trend can disrupt the demand projections
- The North American production and demand pales compared to the production and demand in Asia and Oceana, so a significant pricing disruption in that market segment can impact the performance of Canadian stocks quite drastically
Who Is The Largest Steel Producer In Canada?
The largest steel produced in Canada is ArcelorMittal, which is a Luxembourg -based company and is responsible for about half of all the steel produced in Canada (according to a 2020 report).
The largest Canada-based steel producer in Canada is Algoma Steel Group.
How To Buy Steel Stocks In Canada
The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stock and ETF buys and sells have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
To learn more, check out my full breakdown of the best trading platforms in Canada here.
The best Canadian steel stocks can be powerful growth monsters if you buy them low and the global market stars align in your favour.
If the country starts putting stricter restrictions on imported steel, many Canadian stocks may shoot through the roof, but the probability of the opposite happening (imports crushing local steel) is just as high.
The heavy metal stock can either become a strong pillar for your portfolio or dead weight.
If steel is not your metal of choice, you can check out these gold stocks instead.