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At the mercy of the mill

It’s shaping up to be a bleak winter for hundreds of Sault Ste. Marie industrial service companies and businesses owed anywhere between a few thousand and a few million dollars by bankrupt Essar Steel Algoma. The head of the Sault Ste.
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Restructuring Essar Steel Algoma could devastate steel fabricators and machine shops in Sault Ste. Marie which are owed more than $250 million by the city’s biggest industry.

It’s shaping up to be a bleak winter for hundreds of Sault Ste. Marie industrial service companies and businesses owed anywhere between a few thousand and a few million dollars by bankrupt Essar Steel Algoma.

The head of the Sault Ste. Marie Construction Association expects casualties among his 150 members who are collectively owed more than $250 million by the cash-strapped steel company.

The magnitude of the losses, the impact on local suppliers and the Sault’s economy over the next six to 12 months as Essar restructures has yet to be determined, said Adam Pinder.

“I’m sure some of these companies won’t survive. They just can’t stomach a loss of that size, they can’t absorb that,” said Pinder.

Essar’s ongoing struggles in a weak steel market were well known, but the Mumbai-owned producer was still forging ahead with maintenance work and more than $200 million in mill upgrades.

No one foresaw the steel producers entering CCAA (Companies’ Creditors Arrangement Act) and Chapter 15 creditor protection in the U.S., said Pinder. The steel company owes $163.5 million to vendors, large and small, across Northern Ontario and North America.

Pinder said his members, who are unsecured creditors, are in shock, not sure of what the eventual repercussions will be. “Most of them are assuming all of that the money owed to them is pretty much gone.

Who ultimately gets paid and who doesn’t is in the hands of the court-appointed monitor, Ernst & Young, under the terms and conditions of the CCAA process.

Since Essar entered creditor protection, some contractors have pulled their workers from the site, while others have no recourse but to soldier on with hopes of being paid.

“Unfortunately, in those circumstances, without strong legislation that backs them, they’re at the mercy of that mill, especially when it’s the prime employer. It’s the one place in the Sault that’s consistent and steady in needing that type of workforce.

Getting paid in a timely fashion from Essar (formerly Algoma Steel) has always been a chronic issue.

Pinder said payment from Essar can vary from 60 days – which is the best-case scenario – to as long as a year.

Pinder is awaiting the outcome of the provincial Lien Act review, which will address the issue of late payment, a rampant problem in the construction sector. The final report is expected in the spring.

His association supports a 30-day must-pay stipulation for contractor work completed.

“The payment one is the big thing that affects everyone across the province; every supplier and every sub-trade that is delayed in getting paid is taking on burden that they shouldn’t be. If you talk to any contractor, that’s their biggest issue.”

The owner of one Sault machine shop, who asked not to be identified, is facing the difficult chore of laying off five of his 30-person workforce.

His company is owed well into six figures, according to an Ernst & Young audit list, but he said he’s owed “almost double” than what’s listed.

“Like a lot of Sault companies, we’re a little guy. Once the other creditors get paid off, if there’s any money left I don’t see us being a big priority.”

For a time, he hadn’t been paid for 120 days and had been owed close to $1 million. “In the last six months, we got them down to 60 days and a quarter (million),” he said.

The cyclical nature of the forest and steel industries has compelled the company to diversify its client base. Where once work for the steel plant comprised 65 per cent of their business, it’s now just 15 per cent.

With skills that are transferrable to other sectors, his company cast its line into mining and is exploring other markets.

“My bottom line is I gotta keep my guys working for their families; that’s one of the hardest parts of our job.”

Late payment for suppliers means conserving cash flow and running lean, which factors into hiring decisions and whether to train apprentices.

“We pay our guys every two weeks, and we pay our vendors every 15 days. We would like the same courtesy shown to us.”

Jason Naccarato, vice-president of the Sault’s Chamber of Commerce, surmises the city’s retail base will likely weather the storm, but it’s the advanced manufacturers that will suffer most.

The chamber’s repeated point of emphasis to members is to broaden out their customer base beyond the steel industry.

“We’ve been preaching to them that it’s really time to start diversifying and start thinking globally to develop those relationships with other firms.”

All companies have good intentions to diversify, he said, but when Essar is contracting out work, companies don’t always hold firm on that.

“Even in good times, you have to continue to have your sales force out there talking with other sectors so when something like this happens, you’re not hit so hard.”

Naccarato said interest is growing in reviving a manufacturers’ association to act as a united voice for the city’s industrial supply base.

“With this happening, it’s gaining more popularity and it’s something we, as a chamber, can potentially play a role in.”