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Slumping Algoma Steel looks to put production woes behind

Sault Ste. Marie steelmaker expects lower profits during fall quarter
Algoma Steel aerial 2
Algoma Steel (Company photo)

Algoma Steel has diminished profitability expectations for its upcoming fiscal 2023 second quarter results, due out in November.

The Sault Ste. Marie plate and sheet producer is attributing this forecast to “various operational issues” in production and slumping North American steel prices in delivering an adjusted EBITDA  predicted to be in the range of $75 million to $80 million.

EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, is a metric used to assess a company’s profitability.

During the previous quarter, Algoma's EBITDA had stood at $357.7 million.

Algoma Steel stock has been taking it on the chin in recent months due to previously reported in-house issues. On the Nasdaq, shares had plunged from US$11.40 on April 4, and $9.85 on Aug 25, to $6.66 today.

In a news release, Michael Garcia pointed to difficulties to delays in commissioning its plate mill after upgrade were made and a drop in volume through the direct strip production complex due to a shortage of workers during negotiations with the local Steelworkers union. Then, one of Algoma’s coal conveyor belts, feeding coal into the coke oven batteries, caught fire in early August. 

All this will impact steel shipments from an anticipated 425,000 tons to 415,000 tons, on top of the ongoing drop in steel prices, the company said.

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“We are implementing various measures to address these issues,” said Garcia. “We believe most plate mill issues are behind us and we are now operating above 80 per cent capacity. We continue to work with our vendor on mill automation software to reach our full product lineup and capacity. With respect to the coal conveyor that was damaged by fire in the quarter resulting in higher costs, repair work is expected to be completed in early October, allowing internal coke production to return to 100 per cent capacity.”

Despite these challenges, Garcia said demand for their plate and sheet products remain “steady.”

Construction of its electric arc furnace project remains on schedule with the company poised to throw the start-up switch in mid-2024 and there’s five years of labour peace with the ratification of a new deal with Steelworkers.

“With a robust balance sheet, a continued strong cash generating outlook, and a prudent capital return program, we believe we are well positioned to address these near-term obstacles and deliver long-term value creation for all of our stakeholders,” Garcia said.

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