Algoma looks beyond near-term pricing weakness to EAF future

Despite this summer’s “challenging near-term pricing and uncertain macroeconomic conditions,” Algoma Steel CEO Michael Garcia said the company is focusing on what it can control: operating safely, providing exceptional customer service, and successfully executing its capital programs.

On Wednesday, the Sault Ste. Marie, Ontario-based steelmaker reported earnings for its fiscal 2025 first quarter ended June 30. All told, Algoma’s net income of CA$6.1 million tumbled 95% from last year, on sales that fell 21% to CA$650.5 million.

Garcia pointed out that the company’s quarterly results mirrored the current challenging conditions of the steel market, with slower shipments and softer prices. Shipments declined 12% y/y to 503,152 short tons (st), and revenue per ton fell 11% to $1,453.

He highlighted Algoma’s capital expenditure projects, including its modernized plate mill and its transition to EAF steelmaking.

“We are on the cusp of a new chapter for Algoma and believe that we are on track to deliver strong shareholder value as we transition to becoming one of North America’s greenest steel producers,” he noted.

Plate mill modernization

Algoma’s plate mill was offline for three weeks during the quarter to complete all remaining upgrades. The company had planned for another multi-week outage later this year, but it now expects “any remaining items to be addressed with other planned maintenance activities over the coming year.”

Product quality has been enhanced and plate shipments are ramping up, Garcia commented on an earnings call with analysts on Wednesday. Plate shipments totaled 61,000 tons in the quarter and are expected to be ~90,000 tons in the current quarter. A steady ramp up is expected through the 2025 fiscal year, with the goal of reaching the expected annual run rate capacity of more than 650,000 st.

For reference, about 30% of Algoma’s annual plate volumes are shipped to the US market.

“With the maintenance outages on the blast furnace and the plate mill upgrade complete, our operations are running normally, and we continue to expect solid production levels in the second half of calendar 2024,” Garcia noted.

“I think the main challenge right now, frankly, is the market,” he said on the call. “We’re in a soft market … demand is not necessarily robust right now.”

“I don’t see any near-term catalyst for increased pricing over the balance of the year, and that’s probably going to be the same around demand,” he commented.

EAF transition

Garcia said Algoma is “in the home stretch” of its CA$875-million EAF project. Commissioning activities are expected to begin by the end of 2024 and steel production by the end of Q1’25.

He said all equipment is on site, the building’s exterior and tie-in to the adjacent operations are largely complete, the EAF transformers are in place, and many cranes are already being commissioned.

“We have been on this journey to bring electric-arc furnace steelmaking to Sault Ste. Marie for close to five years. Our entire company is energized as we approach this major milestone,” Garcia said.

Algoma’s start-up plan is for normal production at its existing steelmaking facility while simultaneously ramping up EAF output in 2025, and then for a complete switch to EAF steelmaking. “Sometime in 2026,” the plans are to reach 2.4 million tons of EAF production, Garcia revealed.

He mentioned on the call that Algoma’s headcount will be reduced by ~1,000, with most changes happening after the BF and coke ovens are no longer operating. “The cost of making that headcount reduction is pretty well laid out in the [collective bargaining agreements], and we have good visibility to it,” he noted.

“Near-term pricing weakness can’t dampen our excitement for what’s happening at our company and the huge step forward it represents for Algoma Steel and our community,” he stated.

“We are in a really exciting place right now and we’ll be making EAF steel in over six months,” he added.