Another round of consolidation is coming in the North American steel industry, with companies unable to cut labour costs at greatest risk, according to a report from Dominion Bond Rating Service released today.

DBRS said surging demand for steel from China and soaring prices, which have benefited many companies in the short term, are not sustainable.

The rating service said a slackening in Chinese demand is inevitable and when it occurs it will be “significant and quick.”

Companies least equipped to cope with the resulting rise in competition will be those with high labour costs and rising pension and benefit obligations for thousands of retirees.

DBRS said steelmakers struggling to slash expenses, such as Stelco and Algoma Steel, are handcuffed from making long-term investments in facility modernization and expansion.

It says “premium” producers, such as Hamilton’s Dofasco and U.S.-based Nucor, will be better insulated from the next slump.