Algoma Steel Group, Inc. Q3 FY2026 earnings call

• Transition Milestones: Completed the tie-in work for Electric Arc Furnace (EAF) Unit 2 and achieved first commercial production on October 9, 2026. Both EAF units are now in the regular production schedule, marking the low point of the transition phase.
• Power Reliability: Restored full generating capability at the Lake Superior Power Plant (LSP) on September 30, 2026, by commissioning a newly acquired replacement turbine. A leased turbine is expected to be installed in Q4 2026 to provide redundancy while the affected turbine undergoes repairs.
• Strategic Focus: Reinforced the 'Canada-Centric Plate First' strategy, leveraging Algoma’s unique position as Canada’s only discrete plate producer. Demand remains healthy across infrastructure, construction, and defense sectors.
• Government Support: Acknowledged recent federal and Ontario government announcements, including a joint steel action fund for diversification and strengthened 'Buy Canada'/'Buy Ontario' procurement policies, which are already driving increased orders.
• Operational Discipline: Successfully managed the August LSP outage by pulling forward planned maintenance and advancing commissioning work, minimizing long-term disruption to the ramp-up schedule.

The company operates as a single integrated steel producer, primarily focused on plate products. For the third quarter of 2026, total consolidated revenue was $249.4 million CAD, with steel revenue accounting for $218.2 million (approximately 87.5% of total revenue). The company shipped approximately 144,500 tons, representing a significant volume decline from prior periods due to transition activities and power outages. Average net sales realization for steel reached $1,510 per ton, up 33.7% year-over-year and 11% sequentially. Adjusted EBITDA was a loss of $13.9 million (negative 5.6% margin), an improvement of $73.2 million compared to the prior year loss of $87.1 million. Excluding capacity utilization adjustments and insurance settlements, underlying performance improved by approximately $19 million sequentially despite lower volumes.

• Volume Growth: Fourth-quarter shipments are expected to increase by 25% to 35% versus the third quarter, driven by the ramp-up of EAF Unit 2 and normalized power availability. Volumes will be weighted toward November and December.
• Underlying Performance: Management anticipates a substantial improvement in underlying EBITDA in Q4 2026, excluding any benefit from the capacity utilization adjustment.
• Long-Term Capacity: By the end of 2027, management expects annual average production to reach approximately 1.2 million tons, with end-of-year run rates potentially reaching 1.5 to 1.6 million tons, and theoretical maximums up to 1.8–1.9 million tons once fully optimized.
• Cost Structure: Costs are expected to remain directionally higher than historical levels ($220–$225/ton range) during the 2027 ramp-up but will improve significantly as volume increases and fixed cost absorption improves.

• Operational Outages: The unplanned failure of a turbine at the Lake Superior Power Plant caused an 11-day production pause in August 2026, highlighting vulnerabilities in power generation infrastructure despite recent mitigation efforts.
• Trade Policy Tariffs: U.S. Section 232 tariffs remain in place, causing an 83% decline in U.S.-bound shipment volumes year-over-year. Direct tariff costs were $18.1 million in Q3, down from $89.7 million in the prior year, but exposure remains significant if export dynamics shift.
• Ramp-Up Execution Risk: The transition to dual-EAF operation involves a learning curve regarding alternating arcing and simultaneous operations; delays in optimizing this process could impact volume targets and cost efficiencies.
• Working Capital and Legal: Ongoing legal proceedings related to supply agreements affected by the tariff environment and a confidential settlement with Haverhill Coke create uncertainty regarding future cash flows and working capital requirements.

Q: Analyst asked about volume guidance for next year, noting the 25-35% Q4 increase but seeking clarity on the longer-term ramp trajectory of the two furnaces. / A: CEO clarified that while end-of-2027 run rates could reach 1.5-1.6 million tons, the average annual production for 2027 is expected to be around 1.2 million tons due to the ongoing learning curve of running both EAFs with alternating arcs. He noted that theoretical capacity could reach 1.8-1.9 million tons eventually, but optimization takes time.

Q: Analyst questioned whether increasing domestic sheet/plate shipments would depress Canadian prices given the current market strength. / A: CEO explained that pricing depends on complex factors including trade measures, TRQs, and government procurement policies. He emphasized that most previous sheet shipments went to the U.S., which has declined sharply. The company is disciplined in its growth, and Buy Canada policies are actively driving new demand from customers who previously did not buy from them, supporting price stability.

Q: Analyst inquired about the impact of the new government steel diversification fund on Algoma’s capital stack and specific projects like the beam mill. / A: CEO stated that the beam mill economics remain unchanged and the company is actively engaging with the government to identify suitable programs under the new fund. While details are confidential, he confirmed that diversification initiatives align with the company’s strategy to supply more steel needed domestically, particularly for infrastructure and defense.

Q: Analyst asked for clarification on the timing of the 1.5-1.6 million ton production target and how the cost base is expected to evolve relative to scrap prices and volume. / A: CEO confirmed the 1.5-1.6 million ton figure refers to the end-of-2027 run rate, not the 2027 annual average. CFO Mike Moraca added that costs will remain higher ($220-$225/ton) through the 2027 ramp-up due to lower fixed cost absorption, but will decrease significantly as volume increases and productivity improves, mitigating the impact of raw material costs.