Algoma Steel is incurring some painful transition costs in making the historic switch from blast furnace steelmaking to modern electric arc furnace production.
The two new furnaces aren’t running at full speed and that’s reflected in the bottom line in the Sault Ste. Marie steel producer’s third-quarter results, posted Oct. 28.
Algoma posted a net loss of $129.6 million. up from $96 million in the last quarter.
Revenues came in at $249.4 million, up from $267.5 million posted in the previous quarter. Steel shipments stood at 144,526 tons, down from 181,473 tons in the last quarter.
Algoma attributed the loss to a number of factors, including the cost of making the year-long transition to bringing its new $987-million electric arc furnace (EAF) complex online, to lower steel shipments, to U.S. tariffs on exported steel, and an August power outage that impacted production.
Last January, Algoma retired its last blast furnace and leaned entirely on production from the first of its two furnaces.
That put Algoma in an in-between place with the first furnace still ramping up production while the second furnace was in a systems testing phase.
That meant Algoma’s production facilities weren’t running full out. And that created a big mismatch between fixed overhead expenses and actual output, driving up the cost of every ton of steel produced.
With first furnace running below designed capacity, that building columns, heavy construction equipment, pressure vessels, and military armour plate; all the domestic markets Algoma wants to tap into.
In pursuing a “plate-first strategy,” CEO Rajat Marwah is feeling good about the order book and commented in a news release that they’re seeing “higher steel prices and a greater share of plate driving stronger net sales realization per ton.”
“With both (EAF) units now in place and power fully restored at Lake Superior Power following a temporary outage in August, we are entering the final phase of the most significant transformation in Algoma’s history,” Marwah said.
Their plate strategy and higher steel prices takes the sting out of the $18 million Algoma paid on tariffs during the quarter in shipping steel to the U.S.
But that’s an improvement over the $90 million Algoma paid out during the same period last year when 50 per cent of its shipments went across the border. Today, that percentage is down to 24 per cent.
Algoma pays U.S. tariffs because serves as the “importer of record” for its cross-border shipments, legally binding it to absorb the Trump administration’s 50 per cent tariff on Canadian steel.
