Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Algoma Steel’s proposed electric arc furnace (EAF) is on track to begin operations in 2024. The company indicated that the final investment decision will be made by its Board of Directors shortly.


The proposal includes the construction of blast furnace No. 7, coke ovens Nos. 7, 8, and 9, and EAF No. 1 and No. 2. Oxygen steelmaking via blast oxygen furnace (BOF) would continue between FY2022-FY2024, the company noted in its earnings forecast last week.


EAFs 1 & 2 are slated to begin in 2024. The proposal also includes essential power supply solutions to include short-term transmission line upgrades, long-term bulk electricity system upgrades, and battery electric storage solutions to support steelmaking operations between 2022 and 2025. Algoma anticipates an alternative hybrid model 2026 onwards, with 30pc hot metal from its blast furnace in 2026 before moving towards a full cold-charge scrap model with full grid power for EAF Phase 2 thereafter. 


Algoma foresees an additional C$150mn ($118.54mn) adjusted EBITDA by FY2025 after adding 700,000mt of finished steel capacity aligning its steelmaking capabilities to the company’s rolling capacity. The new EAF will result in a 70pc or 3mn mt decline of carbon emissions with the elimination of coal as an input.


The company also noted the new EAF will provide flexible operations to respond to market needs, reduction of long-term reliance on iron markets, lower fixed costs, increased per employee productivity, and lower capital expenditures long-term. 


Algoma secured a preliminary commitment in July 2021 from two Canadian government entities to provide about C$420 in loan support towards the transformative C$500mn EAF investment.


Q2 outlook flat

Algoma Steel’s Q2 FY2022 (ending September 30, 2021) outlook is over 600,000mt in shipments in line with the 610,000mt shipped in Q1 FY2022. However, adjusted EBITDA is estimated at over C$400mn against C$281mn over the same period due to increased net sales realization per ton from C$1,185/mt in Q1 FY2022 to C$1,200/mt in Q2. The company expects a capacity utilization of 94pc or above in in the upcoming quarter after running at 94pc in the prior quarter. 


The company’s FY2022 projects are also on track to generate improved product capabilities and quality. It initiated over 200 projects that have already resulted in over C$42mn in savings through Q1 FY2022 with another C$8mn in additional realized savings forecast for the rest of the fiscal.



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