U.S. Tariffs on Steel and Aluminum Cast a Shadow on Capital Projects Under Construction

On February 10, 2025, President Donald Trump ordered the imposition of a blanket 25% tariff, effective on March 12, 2025, on all steel and aluminum imports, including those from Canada and Mexico. This has triggered a surge in the share prices of U.S. steel and aluminum producers but simultaneously fueled concerns about the profitability or even viability of many future capital projects in the U.S. Here are our key insights:

-- Many capital projects under development in the U.S. will unavoidably face immediate cost pressures in sourcing relevant construction inputs, potentially causing delays or even failures to complete.
-- The severity of the impact may vary depending on the jurisdictions or the types of assets.
-- The U.S. construction industry will likely suffer at least a temporary supply chain disruption if a deal cannot be reached in the near term. This could be particularly troubling for projects being delivered under fixed-priced construction contracts that have already suffered from high inflation and labour shortage issues over the past several years.

"Our current project finance and public-private partnership portfolios consist almost entirely of projects that have entered operating phases and therefore are essentially insulated from the impact of tariffs on these metals," said Kevin Li, Senior Vice President, Morningstar DBRS. "However, the implication of such tariffs should not be overlooked, but rather carefully analyzed for future projects entering their construction period and projects currently under development."