How will the expanded U.S. tariffs on steel and aluminum affect HPS's profit margins and cost structure?

Impact on profit margins & cost structure

The expanded U.S. 25 %–25 %‑plus tariffs on steel and aluminum derivative products now cover several of the alloy grades HPS uses in its power‑generation and transmission equipment. Because these materials constitute roughly 15‑20 % of the bill‑of‑materials for HPS’s core product lines, the tariff translates into an incremental cost of ≈ $0.9‑$1.2 M per $10 M of revenue (assuming a 20 % material mix). Unless the company can fully offset the surcharge through price increases or supply‑chain re‑engineering, EBITDA margins are likely to be compressed by 30‑50 basis points in the near‑term. HPS has indicated that “certain materials and components” are affected, suggesting that some product families (e.g., custom turbine housings) will see a higher hit than standard transformer cores, which could create margin variability across segments.

Market dynamics & trading implications

From a fundamentals standpoint, the tariff news has pushed sentiment to –45, and HPS’s share price has already retested the 20‑day EMA on elevated volume, breaking a short‑term support zone around C$12.40. The broader industrial sector is also under pressure from higher input costs, limiting the ability to pass-through pricing without risking order attrition, especially in price‑sensitive utility contracts. Consequently, the short‑run outlook is bearish: a 2‑3 % dip appears likely over the next 2‑3 weeks, offering a potential entry point for cautious short positions or put spreads targeting the C$11.80‑C$12.00 range. On the upside, if HPS announces a successful cost‑mitigation program (e.g., sourcing from tariff‑exempt suppliers, redesigning components, or negotiating pass‑through clauses with customers) the stock could rebound to test the 50‑day EMA near C$13.20. Traders should monitor the next earnings release (Q3 2025) and any forward‑looking statements on pricing strategy; a clear commitment to cost‑pass‑through would justify a long‑bias at levels above C$13.00, while continued margin erosion would keep the short‑term bearish thesis intact.