Algoma Steel Group Inc. (NASDAQ:ASTL) Q3 2025 Earnings Call Transcript

Algoma Steel Group Inc. (NASDAQ:ASTL) Q3 2025 Earnings Call Transcript March 13, 2025

Michael Garcia: Good morning, everyone. Thank you for joining us to discuss our fourth quarter and full year calendar 2024. Employee safety remains our foremost priority at Algoma Steel Group Inc. I’m pleased to report significant improvements in our lost time injury performance throughout 2024. With our electric arc furnace project approaching first arc, and first steel expected in April, our site continues to be a hub of activity, making our safety focus more critical than ever. Before diving into the details, I want to highlight three important themes. Our quarterly results reflect the continued challenging conditions across global steel markets, particularly due to tariff uncertainty, which led to lower realized prices during the quarter.

Our balance sheet and liquidity position remained strong, with over $267 million in cash at quarter end and total liquidity of $630 million. We are well funded to complete our transformative EAF project on budget and on schedule. We are in the final stages of EAF commissioning and expect first steel production in April. Our fourth quarter results aligned with our previously disclosed guidance for both shipments and adjusted EBITDA. These results reflect the challenging market conditions we’ve experienced, particularly in the second half of 2024. Steel pricing was affected by US election uncertainty, interest rate concerns, soft demand, and tariff and trade war tensions, all of which have influenced our customers’ buying behavior. In summary, softer realized steel prices and higher costs more than offset higher shipments, leading to an overall decline in revenues, as well as adjusted EBITDA and cash flow generation compared to the prior year.

Our plate shipments for calendar Q4 2024 reached approximately 82,000 tons, up from 73,000 tons in calendar Q3 2024. Looking ahead, we expect our Q1 2025 plate production to be directionally higher as we look to capitalize on our position as Canada’s only discrete plate producer and execute a steady ramp up towards our expected annual run rate capacity of over 650,000 net tons. We are evaluating market conditions as they are changing rapidly, and we are dynamically adjusting our product mix between plate and coil products where possible based on capacity and contractual obligations. This approach continues to provide mix benefit as we focus on higher margin products. Now for an update on our transformational electric arc furnace project. Despite the harsh winter, including particularly heavy snowfall in November and December, cold commissioning activities began in the fourth calendar quarter of 2024 and are progressing in the first quarter of 2025.

These activities include the installation, test, and validation of critical equipment and systems to ensure operational readiness, including EAF charging cranes, as well as the fume treatment plant and water treatment plant. This phased approach allows for thorough assessment and adjustments before transitioning to hot commissioning. With work advancing as planned, first steel production is expected in April 2025, marking a significant milestone in the project’s execution. We have no changes to our expected final budget and are excited to begin EAF operations in 2025. Despite navigating challenging market conditions, we remain well positioned with our balance sheet and liquidity profile. When both furnaces are up and running, we expect to see improved operational efficiency matching steel production to our downstream finishing capacity.

As of December 31, 2024, cumulative investment for our EAF project was at $740 million, including $68 million during the calendar fourth quarter of 2024. All material aspects of the project have been contracted, and we anticipate completing the remainder of the project, including those structured as time and material agreements, within 5% of the upper end of the previously announced budget range. Regarding the evolving tariffs situation between the U.S. and Canada and its potential impact on our business, the implementation of tariffs on Canadian steel and aluminum imports has introduced even more uncertainty into the North American steel market. We expect the Canadian government’s swift and appropriate response will support the industry as we weather the impact of tariffs.

Given the deeply integrated North American supply chain, we believe rational dialogue will prevail between these two close allies, restoring normal steel trade between Canada and the U.S. While we expect these tariffs to pose a significant challenge, we expect that our transition to EAF steelmaking will strengthen our cost structure and enhance our ability to navigate market uncertainties over the long term. In summary, despite very challenging market and weather conditions, we’ve maintained our focus on the safe operation of existing facilities, continued our ramp in plate production, and achieved the final steps toward the first steel production at the EAF. As I’ve said before, the near-term uncertainty in steel markets and uncertainty around tariffs cannot diminish our excitement for what’s happening at our site and the tremendous step forward it represents at our company and community.

I’d like to once again thank all of our employees for their hard work, dedication, and professionalism. Thank you, and I will now turn the call over to Rajat Marwah for a deeper dive into our financials.

Rajat Marwah: Thanks, Mike. Good morning, and thank you all for joining the call. As a reminder, all numbers are expressed in Canadian dollars unless otherwise noted. Our calendar fourth quarter results included adjusted EBITDA that was a loss of $60.3 million and cash used in operating activities of $76.9 million. We finished the quarter with a strong balance sheet, including $267 million of cash, and $362 million under our revolving credit facility. Now let me dive into the key drivers of our results. We shipped 549,000 tons in the quarter, up 6.3% versus the prior year quarter. Net sales realization averaged $976 per ton compared to $1,079 per ton in the prior year period. The decrease versus the prior year level reflects weakening market conditions, partially offset by improvement in value-added mix as a proportion of sales.

Plate pricing continued to enjoy a premium relative to hot rolled coils during the quarter. This resulted in steel revenue of $536 million in the quarter, down 3.8% versus the prior year period, as the lower realized prices more than offset higher shipments. On the cost side, Algoma’s cost per ton of steel products sold averaged $1,032 in the quarter, very similar to the prior year period. Cash used in operations totaled $77 million in the quarter, compared to a use of $47 million in the prior year period. Inventories at the end of December 2024 were $879 million compared to $887 million at the end of December 2023. Looking forward, we remain on track to release approximately $100 million of working capital from March 2024 to March 2025. Now let me run through the full calendar year comparisons.

We shipped 2 million net tons for the full year 2024 compared to 2.1 million net tons in the prior year. Net sales realizations averaged $1,107 per ton, down 5.6% versus the prior year, reflective of softer market conditions, on average across the calendar year, partially offset by improvements in value-added product mix as a proportion of steel sales. This resulted in steel revenue of $2.2 billion compared to $2.6 billion in the prior year. On the cost side, Algoma’s cost of steel products sold averaged $1,054 per ton, an increase of 7.4% over the prior year. The main drivers of this increase were higher variable costs on account of greater consumption of purchased coke and lower shipment volume. Adjusted EBITDA for the full year was $22.3 million, representing an adjusted EBITDA margin of 0.9% compared to adjusted EBITDA of $319 million and an adjusted EBITDA margin of 11.2% in calendar 2023.

The decrease was mainly attributable to lower shipments, lower price realization, and higher costs. Cash flow from operating activities for calendar 2024 was $82 million compared to $269 million in calendar 2023. The decrease year over year was primarily due to factors previously discussed. We remain focused on driving down working capital levels and continue to expect a release of working capital as we transition to EAF. Also on the cash flow front, we expect to receive an advance on insurance payout related to the Futility Corridor and Blast Furnace outage a year ago, with the balance of payout expected by year end. Before I turn it back to Mike, let me make a few comments on our calendar first quarter 2025 results. To date, due to persistently weak market demand on account of trade uncertainty, we reduced our order book during the current quarter.

Coupled with a brief unplanned outage at a blast furnace in February, we expect shipment this quarter to be sequentially lower than the fourth quarter, likely in the mid 400,000 ton range. Along with lower pricing, this is expected to result in adjusted EBITDA that is sequentially lower as compared to calendar fourth quarter 2024. Despite the near-term weakness and trade uncertainty, steel pricing has jumped the last several weeks, and we expect those price improvements will start to be reflected in our results next quarter. I’ll now like to turn the call back to Michael Garcia for closing comments.

Michael Garcia: Thanks, Rajat. In summary, despite very challenging market and weather conditions, we’ve maintained our focus on the safe operation of existing facilities, continued our ramp in plate production, and achieved the final steps toward the on-time first arc of the EAF project. 2025 represents an exciting time in the story of Algoma Steel Group Inc. As we expect to commence first steel in April, with a ramp in production and first arc at the second furnace coming at the end of the year. This will usher in the next phase of our company that defines the future of Algoma Steel Group Inc., provides the foundation for long-term value creation for our stakeholders, and solidifies our leadership position at the forefront of green steel production in North America.

As I’ve said before, the near-term uncertainty in steel markets and concerns around tariffs cannot diminish our excitement for what’s happening at our site and the tremendous step forward it represents for our company and community. Thank you very much for your continued interest in Algoma Steel Group Inc. At this point, we would be happy to take your questions. Operator?

Operator: Please give the instructions for the Q and A session.

Michael Garcia: If you may press star two if you’d like to withdraw your question from the queue.

Q&A Session

Operator: For participants that are using speaker equipment, thank you. Thank you. Our first question is from the line of David Ocampo with Cormark Securities. Please proceed with your questions.

David Ocampo: Hi. Thanks for taking my questions. Just the first one here, Rajat. Maybe you can clarify a little bit. I didn’t quite catch it on the Blast Furnace outage that happened in the quarter. How many weeks was it out for, and what’s the expected cost of bringing that back online?

Rajat Marwah: Yeah. It was not out for a long time. It was, you know, a couple of days to a week, and it was regular. It was not a significant issue that led to it, so not significant cost involved with it. It was more to do with, you know, the heavy snow, the extreme weather condition that we faced during this period, which was, you know, not expected, leading to more ice and the water going into the furnace, which creates some issues. So it was for a couple of days to a week, but no additional cost.

David Ocampo: Okay. And then maybe just turning the page to tariffs, which I imagine will be front and center for you guys. But when we look at CRU prices and think about your cost profile as a blast furnace operator, are you guys still able to generate positive EBITDA or at least breakeven EBITDA with a 25% tariff on your shipments to the US?

Rajat Marwah: Yeah. When you start looking at where the pricing is right now, actually, it’s going to $950 as you see the print on CRU. You know, it starts breaking even to a little bit of money on the current cost side on the coils that go into the US. So your assumption is right that it’s gone higher than what we were saying.

Michael Garcia: David, this is Mike. Plate’s also gone up even more than coil, I think, since inauguration day, both products are up 30% to 35%.

David Ocampo: Gotcha. And then that’s, you know, for at least for the index that we’re seeing for CRU prices, and maybe that pertains more to the US. But I’m curious what you guys are seeing for Canadian sheet prices, especially given that there could be a potential oversupply with Cliffs moving some of Stelco’s shipments down to the US to avoid those tariffs.

Rajat Marwah: Yeah. So, David, you’re right. The Canadian market has shown different dynamics than the US market in the last couple of months. It’s, I would say, oversupplied with coil right now and undersupplied with plate. So the announcements by Canada yesterday putting a tariff on US steel will help. There’s about 3.5 million tons of US steel in the Canadian market over the last twelve months. So, you know, that’s an opportunity for both coil, but more so even plate to start moving up in price in the Canadian market.

David Ocampo: I guess if you had a crystal ball, like, how much of a discount do you think Canadian sheet prices will be versus the CRU index once those tariffs do come into place? I know it’s a bit of a tougher question to answer, but perhaps you can provide some color there.

Rajat Marwah: You know, when you leave the dynamics on products and customers, if you simply look at the math, if Canada is oversupplied and there’s a 25% tariff, so you will at least see closer to the 25% variation in the price in the US versus Canada because there’s more sheet available in Canada versus the demand. So that’s a simple math. When you look at it, and that does not include dynamics around specific type of hot rolled or, you know, little value add preference customer-wise, and other things. So it will range from, let’s say, 20% to 25%, maybe 28%. But again, just a guess, nobody knows how the market will settle. But logically, that’s how the math works.

David Ocampo: Okay. I’ll hop back in the queue. I’ll let other people ask some questions first.

Operator: Thanks, David. Thanks. Our next questions are from the line of Katja Jancic with BMO Capital Markets. Please proceed with your question.

Katja Jancic: Hi. Thank you for taking my question. Maybe staying on the tariff, if these tariffs stick, and you just mentioned that $950 CRU price, you’re essentially breaking even. Are you thinking of taking any mitigating impact effect? Like, for example, are you looking at potentially lowering cost? Is there anything you can actually do at this point to mitigate what’s going on?

Michael Garcia: Hi, Katja. This is Mike. Obviously, lowering cost is always our focus, and with being a couple of weeks away from EAF production, that is the biggest lever that we have to lower cost as a company. And as we ramp up that EAF production and eventually decommission our blast furnace and coke ovens, that’ll reset our cost basis significantly. With that being said, we’ve been pursuing an aggressive reduction plan for really several months now, even before tariffs were the threat that they are now. And we’ve realized gains. There’s more cost savings initiatives that we’re pursuing. So that’s kind of an ongoing thing at all costs. Or at all times, I would say.

Rajat Marwah: And just on the numbers, the numbers keep changing so quickly from the market perspective and how they will stick in the market is yet to be seen, but when you start doing the math, you know, our cost is, as I’ve said, is around $650 for a hot rolled coil. Full in. And US and you know, we’ve been working on a lot of cost reduction, but assuming that where it is, I mean, the math is easy to do on what it will cost us or how much money we’ll make on what pricing. And that’s only for the sheet side without value added without plate.

Katja Jancic: Just to clarify, you said $650 is the all-in cost for HRC right now?

Rajat Marwah: For HRC. Yeah.

Katja Jancic: And then maybe just on the insurance comment, can you remind us how much you’re expecting to get in and maybe more specifically what the timing of that is?

Rajat Marwah: Sure. So we do expect around $100 million to come in. We are working on some advance over the next month or so. And thereafter, we expect everything to get settled during this calendar year.

Katja Jancic: And how much of the $100 million is in the next month? For near term?

Rajat Marwah: Anywhere from $20 to $25 million.

Katja Jancic: And then I think, Rajat, you mentioned before on the working capital release, can you just remind us how much and the timing?

Rajat Marwah: Sure. So we will see $100 million working capital release in this quarter, which is what I’ve mentioned in the past when we were fiscal year expecting $100 million to come by March 2025, and we’ll see that reduction. And continuing on that path, we’ll see more reduction coming as we transition to EAF. As the stock of iron ore and coal and coke comes down and we put scrap in. But that probably will come over this year and next, most of it coming in the next year.

Katja Jancic: And the tariffs do not change the $100 million that you’re expecting to release in this quarter?

Michael Garcia: No.

Katja Jancic: Okay. I’ll hop back into the queue. Thank you.

Operator: Thanks. Thank you, Katja. Our next question is from the line of Ian Gillies with Stifel. Please proceed with your questions.

Ian Gillies: Morning, everyone.

Michael Garcia: Good morning.

Ian Gillies: Just a clarifying comment. You mentioned breakeven at $950 CRU. Is that on a consolidated sales basis? Is that only on the US on US related sales?

Rajat Marwah: So I did say, and I just want to clarify that at $950, you do the math. Cost is $650, so we’ll make some money. It’s not just breaking even. And you know, the breakeven probably is lower than that when you look at 25% tariff. So that’s just to clarify. And the cost will be $650 for us for hot rolled coil US. And plate, definitely, the cost will be higher, but the pricing is substantially higher.

Ian Gillies: Understood. Does that clarify?

Rajat Marwah: Yeah. That’s helpful. Thank you. As it pertains to toggling between HRC and plate, can you maybe talk a little bit about where you think you could get plate production to this year in the event that tariffs happened for the entirety of the year and how you can go about probably, like, really toggling that piece just because there’s been a bit of push and pull the last year on what you thought you might actually produce in calendar year 2025.

Michael Garcia: Sure, Ian. So, you know, we shipped 82,000 tons of plate last quarter. I think you’ll see a directionally higher ramp up in plate in the quarters to come. You know, our next kind of intermediate goal for plate is reaching the 40,000 ton per month level. I think that we’re very confident of that. It takes, you know, a combination of, you know, and you get this typical debate in a steel company is, you know, do we have to have the operations and demonstrate a capability first or do we have to have the sales first? And the ops guy will say, well, we have the sales, I’d be there. And sales guy would be, well, if we had what the customer wants, we would be there. So I think you actually need both almost simultaneously.

You have to demonstrate the delivery performance, the quality, and the reliability as a supplier to the customer at the same time that you kind of need sales to put in, you know, in front of your mill to ramp up. We feel very confident about getting to this next intermediate step of 40,000 tons and then going beyond that, you know, as the year progresses. The plate market in Canada is rapidly changing. We’re the only discrete plate producer in Canada. But even with that being said, it’s not a humongously large market, but in the last twelve months, there was more US sold plate in the Canadian market than Algoma sold plate. That gives us a great opportunity with the tariffs that the Canadian government announced yesterday to go out and capture more market share and more plate sales in Canada.

We’ve already, in the last twenty-four hours, had discussions with plate buyers in Edmonton and with the folks in the supply chain for the two Canadian icebreaker ships that were announced. And we’ve made lots of marine plate in Algoma’s history. Made armor plates. So to the extent that the defense spending and shipbuilding starts to ramp up in the Canadian market, we see that as a great opportunity, especially if the government implements a buy Canadian requirement for that build. So I think that’s how we see the plate ramp up here at the company. Again, it’s a really important opportunity for us, and we’re focused on it, especially during this uncertain time of tariffs.

Ian Gillies: Understood. That’s helpful. There’s been a lot of commentary in and around the Canadian government supporting the steel industry. I’m just curious as to whether it becomes something more than just retaliatory tariffs and whether you think something more along the lines of government loans or government grants may become available not just to Algoma, but to the broader steel industry, and whether that would be something you’re amenable to.

Michael Garcia: Yeah. I mean, I’ve seen the same public comments that you’ve seen about support for the industries affected, you know, vocal support that we’re gonna, you know, we’re gonna protect Canadian workers. We’ll have their… I’m trying to channel my inner Doug Ford here, but we’ve seen the same comments, and I can tell you that we have already engaged in one-on-one discussions with government officials at both the provincial and the federal level on exactly what that means. And what mechanism or what form that pledge of support might take. So there’s nothing I can disclose now, but those discussions are ongoing.

Ian Gillies: Understood. One for me. In the event tariffs get worse from here and they move higher, and you think about the operating platform for the business, do you think you continue running the furnace at close to or near to 100% utilization just to keep it full and so on and so forth and stockpile inventory? Or do you try and reduce throughput and manage your sales volumes that way?

Michael Garcia: Well, I mean, as you know, Ian, when you’re running a blast furnace, it’s very difficult to model a better financial result with a blast furnace that you aren’t running at full capacity utilization. So, you know, that’s what we’re dealing with at least for the next twelve to eighteen months while we ramp up the EAF. So then, you know, your question was about inventory. It’s difficult to just build a stock of coil inventory without a customer because, you know, there isn’t great amounts of standard spec hot rolled coil that you can just put on the ground and have a high degree of comfort that you’re gonna sell that coil easily in the spot market or, you know, with customers. With plate, you were certainly gonna take the opportunity because plate is so important to us this year.

We need to rebuild our plate slab stock a little bit. We do have a plate stocking program where we put plates in stock, finished plate without customers assigned yet, and we sell out of that. So we’ll make sure that both the inventory levels in those two items are where they need to be to support the opportunities on the plate side of our business. But in general, you know, we’re not gonna put thousands of tons of coil on the ground in the hope that the tariffs go down and we can then start shipping coils into the US to customers that we have or would go acquire. Does that help?

Ian Gillies: Understood. Yeah. I know that helps. And last one for me and likely at the margin, but just curious whether you anticipate receiving any carbon tax rebates in 2025?

Rajat Marwah: Ian, we’re expecting, you know, the first payment, which was probably around $7 to $7.5 million, to surely come. And the second one is under discussion. So we’ll see how it goes through. But we are expecting $7 to $7.5 million to come this year.

Ian Gillies: Understood. Thank you very much. I’ll turn the call back over.

Operator: Thank you. Our next questions are for follow-up from the line of David Ocampo with Cormark Securities. Please proceed with your questions.

David Ocampo: Thanks. I just wanted to circle back on my previous question about the Canadian discount prices that’s happening in the market. But more specifically, you guys have a pretty large contracted order book, and I think that’s all based on CRU prices. So are your customers or Canadian customers giving any pushback if, you know, spot prices in Canada are at a 20% to 25% discount relative to CRU?

Rajat Marwah: So, David, most of the contracts that we have are in the US. Very little in Canada. The Canadian market mostly works on spot, and that’s why you’re seeing this kind of anomaly also happening in Canada. So Canadian pricing is lower, and most of it is spot. The US car is on contract, and it goes through CRU.

David Ocampo: Okay. And then just the last one, just on the EAF ramp, first production expected in April. But I was hoping you guys could provide a little bit more color on how much production you guys can expect on a quarter-by-quarter basis until you’re fully ramped in twelve months.

Michael Garcia: Sure. So, you know, our plan for the full year, the remaining, I guess, nine months is around just over 200,000 tons of EAF production. The majority of that will be on EAF, the first EAF that we’re starting up in a couple of weeks. And it’ll be a relatively steep ramp towards the back half of the year. You know, we want to be making our first EAF steel. The plan is in April, as we shared, there won’t be significant amounts of steel produced in the second calendar quarter. Then there’ll be more in the third, and I would say much more in the fourth, if that helps.

David Ocampo: Okay. And then, Rajat, you think the $650 breakeven that’s on a combined basis between the EAF and Blast Furnace, or is that one or the other?

Rajat Marwah: No. That’s this year on the blast furnace. EAF will be, as I mentioned, we have most of the fixed cost on the EAF barring some. So the additional tonnage that’s coming from the EAF will give contribution because most of the fixed cost is there. So that’ll be scrap, and other variable costs, electrodes, and others, and less the selling price. So it will be on contribution. Once it’s done, as we said, EAF will be plus $220 for us, $200 to $220 US for full conversion. And that’s how it will play out.

David Ocampo: Okay. That’s perfect. That’s all for me. Thank you.

Operator: Thanks, Taylor. Our next question is a follow-up from the line of Katja Jancic with BMO Capital Markets. Please proceed with your question.

Katja Jancic: Hi. Thank you for taking my question again. On the volume for this year, so if we have 200,000 tons from the EAF, how to think about and the first queue, you already said mid 400. How to think about the volume in the rest of the year from the blast furnace overall. And then also how to think about the split between plate and nature given that maybe there’s a lot more opportunity on the plate side?

Rajat Marwah: Correct. So it will be, you know, anywhere from 2 million to 2.2 million tons in the total. I mean, you can take 2.1 to 2.2 just to narrow the range from overall shipment for the calendar year. And on the plate side, we will see, you know, higher shipment for sure. It’ll probably average around, you know, 35,000 or for the balance of the year, 35,000 to 40,000 tons a month. So that will be our shipment on the plate side. And overall 2.1 to 2.2.

Katja Jancic: Okay. Thank you.

Operator: Thank you. At this time, I would like to turn the floor back to Michael Moraca for closing remarks.

Michael Moraca: Thank you again for your participation in our calendar fourth quarter 2024 earnings conference call and your continued interest in Algoma Steel Group Inc. We look forward to updating you on our results and progress when we report our calendar first quarter results later this spring.

Operator: Thank you. This does conclude today’s conference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.