SSM EDC Writes Prime Minister Trudeau

The Right Honourable Justin Trudeau, PC, MP, Prime Minister of Canada

Dear Prime Minister,

I write to you today, as President and Chair of the Sault Ste. Marie Economic Development Corporation in support of a resolution passed by our Board of Directors. We are a non-profit organization, funded by public and private partners, whose goal is to be the community’s leader in supporting and promoting an environment that generates sustainable employment in a healthy, growing and diversified economy. Our Board consists of volunteer representatives of local businesses and organizations operating in the City.

Crisis in the Canadian Steel Industry

The crisis in the Canadian steel industry is having serious ramifications for everyone in Sault Ste. Marie and area, as well as having significant strategic and economic implications for Canada. Locally, this crisis only exacerbates the current, extraordinarily poor employment situation in the community – by all measures the worst in 20 years. This industrial crisis extends to communities across the country where approximately 20,000 people are directly employed in the manufacturing of steel. It further extends to communities that are home to value-added manufacturers of products that rely on North American, and in particular, Canadian, steel production.

Three quarters of all manufactured goods in North America contain steel. It is a fundamental part of the supply chain for key industrial sectors in the Canadian economy such as automotive, energy, construction and light manufacturing.

Two of Canada’s largest steelmakers, including Sault Ste. Marie’s Essar Steel Algoma, are currently operating under the Companies’ Creditors Arrangement Act (CCAA). Another Sault Ste. Marie steel product manufacturer, Tenaris Algoma Tubes, has undertaken massive layoffs in response to dire market conditions.

According to industry analysts, steel prices are at a 12 year low, hard-hit by the collapse of world steel demand and a sustained slump in the energy sector. This has prompted a large influx of low-priced steel imports into the Canadian market by international competitors who are not constrained by the same labour and environmental costs. In many cases, these companies are state-owned or subsidized by their governments.

Sault Ste. Marie Steel: Part of the Fabric of Canada’s Industrial Manufacturing Base

Sault Ste. Marie, with a population of approximately 75,000, is home to Canada’s 2nd largest steelmaker, Essar Steel Algoma Inc.:

A 2,500,000 ton/yr. integrated producer of steel sheet and plate products and the only steel plate mill in Ontario;

• An employer of 2,700 people at the steelworks in Sault Ste. Marie, an operation that has been in existence for over 100 years;
• Second largest private sector employer in Northern Ontario with 2,700 direct jobs as well as another 4,600 indirect and induced jobs;
• Largest private-sector employer in Sault Ste. Marie; with an estimated annual payroll of over $360M and contributes $1.236 billion to Ontario’s GDP;
• A company that supports 6,400 pensioners and their dependents (approx. 80% live within 100 km. radius of the City);
• A company that spends $1.2 billion annually on goods and services – $120 million of which goes to hundreds of local businesses; and,
• A significant contributor of tax revenue to Canada, Ontario and Sault Ste. Marie.

In addition to being to one of this country’s largest steel manufacturers, Essar Steel Algoma Inc. is ranked among the top quartile of low cost steel producers in North America. The company has completed substantial improvements to its operations and cost structure over the past several years. Since 2007, Algoma has reduced its operating expenses by 30% and headcount expenses by 25%. Over the same period of time, employee productivity has increased by 21%. Furthermore, in fiscal 2015, Algoma has achieved cost savings of $12 per ton of steel produced.

Sault Ste. Marie Economic Development Corporation Board of Directors Resolution

The SSMEDC’s priority and focus is a reinvigorated, integrated steel producer in Sault Ste. Marie that can fairly and freely compete on a global basis. In this regard, we support Essar Steel Algoma Inc.’s (ESAI) request to the Canadian government to make changes in federal policies, programs and regulations that will help the country attract and keep investment in Canada, thereby strengthening the Canadian steel industry and helping secure the economic sustainability of Sault Ste. Marie.

More specifically, on Monday, February 1, 2016, our Board of Directors unanimously voted in support of the company’s appeal to the Federal Government articulated in its January 14, 2016 submission to Francois-Philippe Champange, Parliamentary Secretary, Minister of Finance, (Attachment A) as part of the federal pre-budget process. By addressing the issues and recommendations, it would benefit Canada, our manufacturing sector, our domestic steel industry, our economy and our community.

We urge you and the Federal Cabinet to seriously consider and take action in the following areas described in the attachment to support this sector and this integral part of our economy:

A Canadian Pro-Manufacturing Agenda

We commend the introduction of the Advanced Manufacturing Fund and encourage ongoing support of this nature for capital-intensive projects in large and mid-size manufacturing businesses.

• Incentives for process improvements and environmental controls to help make the case for investment in Canada in relation to other jurisdictions; and,
• Re-consideration of recent changes to the SR&ED program that now excludes investments in close to market innovation, particularly for larger manufacturing companies – thereby helping domestic manufacturers to stay ahead of the curve in highly competitive marketplaces.
• A strong domestic steel industry:

– is an important partner to attract and retain industrial sectors including manufacturing;

– maintains the technical expertise and skilled workforce required to support the use of advanced steels in manufacturing and infrastructure projects here in Canada;

– directly employs over 20,000 and a further 100,000 Canadians indirectly, and contributes in the range of $12-14 billion to the national GDP annually; and,

– improves Canada’s competitive position in a wide range of industrial sectors, both within Canada and beyond.

Canadian Infrastructure Investment and Procurement Policy/Program Considerations

• Use the $125 billion infrastructure investment as a means to support the Canadian steel industry by promoting a “Buy Canadian” Strategy as an integral part of this program.Canadian steel faces competition from imports for government procurement projects. At the same time, Canadian steel producers face barriers and restrictions when they look to participate in projects in the US and in other jurisdictions. If there is not a level of reciprocity in place or negotiated with these jurisdictions, we respectfully request Canada to exercise its rights in trade agreements to establish Canadian preference policies.
• Recognize and take advantage of the full economic multiplier benefit of the $125 billion investment by using Canadian produced steel, goods and other Canadian materials in these infrastructure projects.
• Recognize and promote the benefits of indigenous Canadian steel production in supporting reduced global greenhouse gas emissions. According to industry analysts, the production of foreign steel has an average carbon footprint more than six times than that of Canadian produced steel. Take into consideration the environmental impact by the transport of steel produced in these jurisdictions and shipped to North America – the carbon footprint is 10 times greater than Canadian steel.

Trade Remedy Modernization

• Support free but fair trade;
• Re-examine Canada’s trade remedy system with the objective of maintaining market- based trade as an explicit part of Canada’s international commerce strategy with specific attention to reforms in the areas referenced in Attachment A. These reforms are detailed in the Canadian Steel Producers Association Trade Remedy Modernization proposals in Attachment B and supported by the United Steelworkers (USW) Union

In conclusion, time is of the essence in dealing effectively with the crisis now occurring in Canada’s Steel and manufacturing sectors, plus our community’s economic future. The CCAA restructuring process is underway for two of Canada’s major integrated steel mills. Quick action will not only mitigate the crisis, it will pave the way for strong and immediate return on Canada’s invest with more robust and globally competitive steel manufacturing industry.

Our community’s and our steelmaker’s economic health are interdependent. Immediate support and action by the federal government is necessary at this critical stage, both in supporting positive community outcomes from the restructuring process and with federal policies programs and regulations that support the industry.

We look forward to your supportive response and working together to strengthen the economy of Canada and Sault Ste. Marie for many, many years to come.

Sincerely,

Don Mitchell,
President and Chair
Sault Ste. Marie Economic Development Corporation

Cc: Hon. Chrystia Freeland, Minister of International Trade
Hon. Navdeep Bains, Minister of Innovation, Science, and Economic Development Hon. Amarjeet Sohi, Minister of Infrastructure and Communities.
Hon. Terry Sheehan, MP Sault Ste. Marie
Hon. David Orazietti, Ontario Minister of Government Services and MPP Sault Ste. Marie
His Worship, Christian Provenzano, Mayor, Sault Ste. Marie & Sault Ste. Marie City Council
Monica Dale, President, Sault Ste. Marie Chamber of Commerce
Jack Ostroski, Area Coordinator, N.W. Region, USW, Sault Ste. Marie
Marty Warren, District 6 Director, USW, Ontario
Ken Neumann, National Director, USW Canada
Bob Grant, President, SOAR, Chapter 7
Don Barill, President, SOAR, Chapter 17
Prashant Ruia, Director, Essar Group
Rewant Ruia, Director, Essar Group.

Kalyan Ghosh, CEO, Essar Steel Algoma Inc.

Joseph Galimberti, President, Canadian Steel Producers Association
Al Horsman, CAO, City of Sault Ste. Marie
Malcolm White, City Clerk
Sault Ste. Marie Economic Development Corporation Board of Directors and Staff