Canada says its Stelco layoff standoff with Cleveland-Cliffs will be resolved within days, with a forced sale on the table

Canada's industry minister says the government's standoff with Cleveland-Cliffs over layoffs at its Canadian steel unit, Stelco, will be resolved within days, and that the U.S. steelmaker faces possible penalties or a forced sale of its Canadian assets.

What Ottawa said on Friday

Asked on Friday whether there was a timeline for resolving the standoff, Industry Minister Mélanie Joly said: "It's a question of days," according to Global News. The government believes there have been "multiple breaches of the commitments" Stelco made under the Investment Canada Act, Global News reported, and Joly said the company faces financial penalties and "a potential forced divestiture."

"We will apply the full force of the law and every tool in the toolbox to ensure that this strategic capacity remains operational," Joly said. "And they must keep the jobs in Canada or face the prospect of having to sell their Canadian assets."

As of Friday, the government had not announced a court filing.

The promise at the center of the fight

When Ottawa approved Ohio-based Cleveland-Cliffs' takeover of Stelco in 2024, the company gave legally binding undertakings. Among them: keep at least the same number of unionized employees in Canada for five years, along with the vast majority of non-unionized staff.

On Sept. 28, Stelco said it would lay off up to 500 workers at its Hamilton and Nanticoke, Ont., plants, saying it could no longer compete in galvanized steel because of the trade war with the United States, The Globe and Mail reported. Joly gave the company five business days on Oct. 5 to lay out how it would meet its job commitments.

Stelco answered in an Oct. 9 letter from its president and general counsel, Paul Simon, which The Canadian Press obtained. The letter said Canadian exports of cold-rolled and coated steel to the U.S. had fallen 58% from pre-trade-war levels, and that imports held 45% of the Canadian market for those products. "Stelco cannot continue to produce cold-rolled and coated steel products without incurring significant losses that are not sustainable," Simon wrote. He argued the undertakings do not bar layoffs or require headcount to stay above a set number every day of the five-year period.

Cliffs' position

Cleveland-Cliffs CEO Lourenco Goncalves has said he is ready to fight in court. "There is no provision in the contract that I have to keep employment at a certain level every single day of the five years," he told CBC on Oct. 11. He called the layoffs temporary and said the jobs would return once Canada and the U.S. reach a trade deal.

Goncalves also told CBC he supports the U.S. Section 232 steel tariffs, even as Stelco cites the 50% U.S. tariff on Canadian steel as a main reason for the cuts. Asked whether he would sell Stelco, he said: "For a good offer, yes."

What a court could order

Joly has pointed to Section 40 of the Investment Canada Act. Under it, she said on Oct. 14, a court process could lead to financial penalties, an order forcing the company to honor its commitments, or a forced sale of its Canadian assets.

There is a precedent involving the same plants. After U.S. Steel bought Stelco in 2007 and later cut Canadian jobs during the financial crisis, Ottawa sued in 2009 over its undertakings. The case was settled in 2011 with new commitments on production and investment.

What is at stake

For Cleveland-Cliffs shareholders, the dispute raises the possibility that the company could be made to sell its Canadian operations on a timetable set by a court rather than by management. Goncalves has said the 50% U.S. tariff means Cliffs can no longer profitably sell galvanized steel from Stelco into the U.S. market, The Globe and Mail reported, and he has said publicly he would sell for a good offer.

For Canada, it is a test of whether investment-review commitments hold when market conditions change. Ron Wells, president of United Steelworkers Local 1005, told CBC on Oct. 14 that 90 workers had been laid off the previous week and another 85 were expected to lose their jobs by the end of that week. The union expects 300 to 350 cuts in Hamilton, with more possible at the Lake Erie Works in Nanticoke. Global News reported the remaining layoffs will roll out over three weeks. Wells has said he is open to Cliffs selling Stelco and hopes Ottawa nationalizes the company.