Sheet mill issues puncture Algoma Steel’s quarterly results

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Steelmaker Sault announced that it is completing the final stages of commissioning the first phase of the modernization of its troubled plate plant.

Algoma Steel Group Inc. shipped 435,202 tonnes of steel in its fiscal second quarter of 2023, down 25.9% from the 587,340 tonnes shipped during the same period last year.

“The year-over-year decline in shipments was largely attributed to delays in the start-up of the modernized heavy plate plant and production shortfalls at our direct strip production complex (DSPC) related to events of temporary labor availability,” the company said in a press release issued after the markets closed on Monday.

This and other less than stellar numbers were not a surprise.

What SooHoy reported in late August that a $120 million modernization upgrade at the Algoma plate plant has been running months behind schedule, beset by tech gremlins.

The delay was one of the causes cited in August for an 11.9 percent drop in first-quarter shipments: 537,524 tonnes compared to 610,057 during the same period last year.

Rajat Marwah, Algoma’s chief financial officer, then warned that upcoming shipments for the fiscal second quarter would be similarly affected.

On Monday night, the company reported second-quarter revenue totaling $599.2 million, down 40.7 percent from the $1.01 billion in the year-ago quarter.

Steel revenue was $551.5 million, down 41.1 percent.

Revenue per ton of steel sold was $1,377, down 19.9 percent from $1,720.

The Algoma Plate Plant is the only Canadian producer of discrete steel plates, a product used to make Royal Canadian Navy warships (HMCS Toronto and HMCS Halifax), as well as bridges (Champlain Bridge, Bluewater Bridge ), buildings (Pearson International Airport, Rogers Centre, GFL Memorial Gardens), and wind turbines throughout the province.

Our local plate mill is actually a combined mill, producing both steel strip and plate.

Other excerpts from Algoma’s Monday night announcement:

  • consolidated revenue for the latest quarter was $599.2 million, compared to $1.01 billion in the prior year quarter
  • consolidated income from operations was $5.6 million, compared to $402.1 million in the prior year quarter
  • net income was $87.2 million, or $0.36 per diluted share, compared to $288.2 million, or $4.02 per diluted share in the prior year quarter
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, considered an important indicator of operating performance and profitability) was $82.7 million and Adjusted EBITDA margin was 13.8%, compared to $430. 6 million and 42.6% in the quarter of the previous year
  • Average realized steel price net of freight and non-steel revenue was $1,266 per tonne, down 20.6% from $1,594 per tonne in the prior year quarter.
  • cost per ton of steel products sold was $1,033, up 20.7 percent from $857 in the prior year quarter, primarily driven by higher input costs associated with purchases of third-party metallurgical coke, natural gas, alloys and scrap

“As previously reported, the fiscal second quarter presented a number of operational challenges that negatively impacted our results, as we worked against the backdrop of uncertain steel prices,” said Michael Garcia, CEO of Algoma.

“We are focused on overcoming those transient events to bring our facilities back to full operating capacity. We estimate that the operational challenges will have a financial impact of $130 million in Adjusted EBITDA, with approximately 60 percent incurred in the fiscal second quarter and the rest to affect the third fiscal quarter,” Garcia said.

“We continue to make progress on our electric arc furnace transformer project, which remains on time and on budget, and we are completing the final stages of commissioning the Phase 1 modernization of the plate plant.”

“Despite short-term pricing challenges, we will continue to focus on improving operating performance and disciplined execution to drive long-term value creation for all of our shareholders,” Garcia said.

The year-over-year decline in revenue from operations was primarily due to a decline in the sales price of steel and an increase in costs, Garcia added, including the replacement of internally produced coke with purchased coke as a result of a fire at the transporter and an increase in the purchase price of key inputs, including metallurgical coke, natural gas, alloys and scrap.

Net income in the second quarter was $87.2 million, compared to $288.2 million during the same period last year.

Algoma reported that its $700 million electric arc furnace project is “progressing according to plan” and will take two years to complete.

Algoma’s board of directors declared a regular quarterly dividend of $0.05 per share of common stock outstanding, payable on December 30, 2022 to holders of record of the corporation’s common stock at the close of business on November 30, 2022.

“Today, Algoma is on a transformation journey, investing in its people and processes, optimizing and modernizing to ensure a sustainable future,” the company said in its Monday night press release.

“Our customer focus, growing ability and courage to meet industry challenges firmly position us as your partner in steel.”

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