It's a great time to be in the steel industry, according to Algoma Steel CEO Mike McQuade.
Steel prices are at record highs, there's pent-up demand from North American automakers, and the Sault Ste. Marie manufacturer of plate and sheet steel is turning a profit in the midst of an historic retooling with new deep-pocketed ownership group set to take over this year.
"Exciting times to say the least for the steel sector, and for Algoma Steel in particular," said McQuade in an Aug. 20 earnings call to current and prospective investors ahead of their return as a publicly-listed company on the NASDAQ and the TSX later this year.
Algoma pocketed a profit of $214 million during the first quarter of its 2022 fiscal year, a period ending June 30, up from the $114 million in net revenue from the previous quarter.
Over four months, Algoma shipped 610,000 tons of steel, down two per cent from the previous quarter, but up 47 per cent from the pandemic low during the same period in 2020. Steel revenue amounted to $765 million, up 21 per cent from the fourth quarter of 2021 and way up, 124 per cent, from the $342 million posted at the same time last year.
Chief financial officer Rajat Marwah was pleased with the results, commenting Algoma "met and exceeded" its production guidance targets for the quarter.
Since August 2020, steel prices have steadily risen and stayed strong for 53 consecutive weeks thanks to "unprecedented demand" for the auto industry, Algoma's bread and butter customers.
With low steel inventories out there, there's no reason to believe this pricing trend won't continue "for the foreseeable future," said Marwah.
With extraordinary cash generating opportunities ahead, McQuade said Algoma is poised to take full advantage of market conditions.
He pointed to timely investments with upgrades to both the plate mill and direct strip production complex, and the commissioning of its second ladle metallurgical furnace to boost production capacity by 100,000 tons.
McQuade said senior management spent the last 20 months coming up with a strategic direction that's starting to bear fruit as the 120-year-old company evolves into a "next generation steelmaker," one will be able to weather the ups and downs of the cyclical steel market.
The key will be the switch to electric arc furnace (EAF) steel production by the middle of this decade, a move McQuade said will "pave the way for Algoma to produce some the greenest steel in North America."
Moving off coal-based steelmaking, he said, will reduce Algoma's airborne emissions of carbon dioxide by three million tonnes, the equivalent of shuttering a coal-fire power plant or removing a million gas-powered cars from the road.
"We are currently working through the last elements of this (EAF) project which will allow for our board of directors to make a final investment decision," McQuade said.
But the federal government's already given them a head start on financing with $420 million coming from the Strategic Innovation and the Canada Infrastructure Bank, as part of Ottawa's efforts to reduce greenhouse gas emissions.
Algoma's timetable shows construction of two electric arc furnaces starting sometime next year and continuing over a 28- to 30-month period. That'll be followed by a commissioning and ramping up period before entering full production by 2026.
The two furnaces will work in combination with liquid iron provided from the blast furnace.
"Electricity is critical to this project," said McQuade.
The discussions are taking place with government to upgrade and increase the power supply infrastructure into the steel plant with a 230-kilovolt transmission line.
One idea also being studied is employing battery storage technology. McQuade said Algoma remains active in pursuing financing for the EAF project.
The company also makes its return the public markets this year when their proposed merger with New York-based Legato, a special purpose acquisition company, closes in the third quarter, delivering up to $306 million to Algoma's bank account.