Algoma Steel Group, Inc. Q1 FY2026 earnings call

• Transformational Transition Completed

  • Algoma permanently halted all legacy coal-based blast furnace operations on January 18, 2026, ending 125 years of integrated steelmaking and completing the transition to a fully electric arc furnace (EAF) steelmaking platform
  • The EAF Unit 1 and associated melt shop are operating 24/7 as designed, meeting all quality metrics for plate and hot-roll coil grades, with stable performance from all core process components

• Strategic Positioning & Diversification

  • Formed Rochelle Algoma Defense, a joint venture with Canadian defense manufacturer Rochelle Inc., to establish a domestic Canadian center of excellence for full-cycle ballistic steel production and fabrication, supporting Canada's defense industrial sovereignty
  • Signed a binding MOU with Hanwha Ocean for a potential structural beam mill project: Hanwha will contribute up to US $200 million for development, with up to US $50 million in anticipated product purchases tied to the Canadian Patrol Submarine Program, pending final contract awards and definitive agreements
  • The company is positioning itself as a strategic domestic supplier for Canada's industrial and defense priorities, rather than a commodity steel producer, aligned with Canadian policy supporting domestic sourcing and industrial sovereignty

• Financial & Liquidity Update

  • Q1 2026 adjusted EBITDA was a loss of $28.7 million (negative 9.7% margin), an improvement from the year-ago adjusted EBITDA loss of $46.7 million when adjusting for non-recurring prior-year insurance proceeds
  • The company released over $100 million in working capital in Q1 by drawing down pre-blast-furnice closure slab inventory
  • Total available liquidity at quarter end was approximately $553 million, including $65.3 million cash, $195 million in unused revolving credit capacity, and $292 million in remaining availability under LETL facilities
  • Q1 capital expenditures were $20.4 million, down significantly from $127 million in Q1 2025 when EAF construction was ongoing

Algoma Steel operates two core product segments: discrete plate and hot rolled coil. In Q1 2026, the company achieved record plate sales of 116,000 net tons, with healthy demand for plate from infrastructure, construction, and defense end markets. Plate delivers a significant pricing premium over coil and is the core focus of the company's new strategic direction as Canada's only domestic discrete plate producer. Total steel revenue for the quarter was $266.9 million (Canadian dollars, same below), down 42.4% year-over-year, as a 52.4% YoY decline in total shipment volumes (224,000 net tons total) more than offset a 21% YoY improvement in average net sales realization to $1,193 per ton. The average sales improvement was driven entirely by the deliberate product mix shift toward higher-value plate, which now accounts for over 50% of total sales volume from less than 50% in prior periods. The coil segment continues to face structural oversupply and downward pricing pressure in the Canadian market from import competition and U.S. steel imports, so the company is de-emphasizing coil to focus on plate.

• The company views Q1 2026 adjusted EBITDA as the trough for the current transition period, with performance expected to improve as EAF ramp-up progresses, operational stability increases, and transition-related costs are eliminated
• The $90 million Q1 capacity utilization charge (excess fixed costs from legacy operations) will decline linearly over Q2 and Q3 2026, reaching $0 by Q4 2026
• Management reaffirms its expectation to reach break-even adjusted EBITDA by Q4 2026
• Total shipment volumes are expected to be slightly lower sequentially in Q2 2026, while plate volumes will increase slightly sequentially as the company flexes down coil volumes to match oversupply conditions
• Maintenance capital expenditures going forward are expected to be meaningfully below the historical annual sustaining level of approximately $120 million, due to the newer, lower-maintenance EAF facility
• Approximately $200 million in positive cash flow items are expected in 2026, including income tax refunds and remaining insurance proceeds from the 2024 structural collapse claim
• Overseas sales volumes are not expected to materialize until late 2026, when commercial agreements are expected to be finalized

• The 50% U.S. Section 232 tariff on Canadian steel imports creates ongoing material headwinds: Algoma incurred $27.4 million in direct tariff costs in Q1 2026, and is more exposed to tariffs than nearly any other North American steel producer
• The Canadian coil market faces persistent structural oversupply, import competition, and U.S. steel imports, which keeps coil pricing depressed
• The Hanwha Ocean structural beam mill project and Rochelle Algoma Defense joint venture remain subject to final contract awards, definitive government and partner agreements, and regulatory conditions
• Scrap pricing follows North American market indexes, with no near-term cost mitigation from alternative inputs like DRI or HBI, though the company retains an idle legacy blast furnace as a long-term pig iron production mitigation option
• The company is currently involved in unresolved legal proceedings related to supply agreements, claiming contracts were frustrated by the unforeseen extraordinary tariff environment

Q: What is the expected trend of capacity utilization charges, and can adjusted EBITDA reach break-even by Q4 2026? / A: Management confirms capacity utilization charges will decline linearly from $90 million in Q1 to zero by Q4 2026, and reaffirms the expectation of reaching break-even adjusted EBITDA by Q4 2026. The reduction in charges comes from shedding fixed costs tied to closed legacy blast furnace assets, which will align operating costs with the new 1-1.2 million ton annual EAF production capacity.

Q: What is the size and value of the Canadian defense steel market for the new joint venture? / A: Like the U.S. market, overall defense steel volume in Canada is relatively small as a share of total national consumption. However, the joint venture captures value beyond raw steel by controlling the full domestic supply chain, including fabrication, welding, machining, and assembly, to deliver complete sovereign defense solutions, creating far more value than steel production alone.

Q: What is the update on the potential structural beam mill project, and how do tariffs factor into the strategy? / A: Management notes significant ongoing work on project planning, market analysis, and government discussions. The project fits well with the EAF platform and aligns with growing domestic demand for structural steel driven by Canadian infrastructure investment, as the current domestic beam market is overwhelmingly supplied by imports. Tariffs on imported steel reinforce the strategic case for domestic production, and the project is a core long-term diversification initiative.

Q: Is there progress on developing an overseas sales strategy to achieve economies of scale? / A: Management confirms ongoing commercial discussions and product trials for export sales, but no material volumes are expected until at least the end of 2026, when final commercial agreements are anticipated to be completed.