Algoma Steel: The First Heat Is In, but the Ramp Is the Real Test
A turbine outage and a low-volume quarter mask a genuine operating inflection — and a more conservative 2027 guide than management's tone suggests.
ASTL · Earnings Call · 2026-10-29
The low point is in — and the market already knows it
Algoma's third quarter was ugly on the surface: shipments of roughly 144,000 tons versus 419,000 a year ago, revenue of C$249.4 million, and adjusted EBITDA of negative C$0.9 million. But the volume collapse was pre-announced. The real news was operational. The LSP outage — a turbine failure at Lake Superior Power on August 17 — forced a steelmaking pause until August 29, and a replacement turbine restored full generating capability on September 30. More important, EAF Unit 2 produced its first commercial heat on October 9. “On October 9, we achieved our first commercial heat from the new EAF.” — Rajat Marwah, Chief Executive Officer · 2026-10-29 That is the transition crossing from construction into operations, and it matters more than a messy quarter.
we expect that the third quarter was the low point of the transition. With power restored and both EAF units now in our production schedule, we expect fourth quarter shipments to increase by approximately 25% to 35% versus the third quarter.
The underlying improvement is real but thin. Excluding the capacity utilization adjustment and last quarter's insurance settlement, adjusted EBITDA improved by about C$19 million sequentially, on 20% lower volume — the second consecutive quarter of underlying improvement. Cost per ton of steel sold rose to C$1,490 from C$1,280 a year ago on worse fixed-cost absorption, and the capacity utilization charge was still C$53.1 million. So the quarter was not a victory lap; it was the bill for running a transition.
A quieter ramp guide than the cheerleading implies
Management's tone is confident, but the guidance is more conservative than the July call. In July, the CEO framed the post-transition run rate as 1.5 million to 2 million tons entering 2027. “our exit will be similar to what we had said in the past, 1.5 million to 2 million tons will be the run rate when we get into 2027 calendar year.” — Rajat Marwah, Chief Executive Officer · 2026-07-30 On this call, the 2027 average is around 1.2 million tons, with an exit rate of 1.5 to 1.6 million tons. “It could be around 1.2 million.” — Rajat Marwah, Chief Executive Officer · 2026-10-29 That is not a collapse in the story, but it is a quieter ramp than the prior language implied.
The learning curve is doing a lot of work here. Scrap procurement is not the problem, and the equipment is performing; the issue is learning to arc two furnaces alternately. “The second EAF unit that came online, has been ramping way faster because we learned a lot on the first unit.” — Rajat Marwah, Chief Executive Officer · 2026-10-29 That is encouraging. But the cost target has slipped: the scrap-plus-C$225 conversion cost is now framed for early 2028, when additional power is available, not for the 2027 ramp. Next year, costs will be directionally higher than that target.
There is also a small credibility test on the capacity utilization charge. In May, management said it would trend linearly to zero in Q4. “the capacity utilization adjustment really will trend down linearly from where we're at here at $90 million this quarter to 0 in Q4.” — Michael Moraca, Chief Financial Officer · 2026-05-13 On this call, the message is no add-back in Q4 — but the charge was still higher than expected because of the outage. “We do not expect to have an add back to EBITDA in Q4.” — Michael Moraca, Chief Financial Officer · 2026-10-29 That is a softer version of the same promise. Investors should watch whether the charge actually disappears as volumes build.
Tariffs, plate, and the Canadian policy put
Direct tariff costs fell to C$18.1 million from C$89.7 million a year ago, but only because U.S.-bound shipments fell 83%. The 50% U.S. tariff on Canadian steel remains in place. That is the bind: Algoma's old export model is uneconomic, so the company is leaning harder into Canada and into plate. Plate shipments were 105,000 tons, about 73% of the mix, and average net sales realization rose to C$1,510 per ton, up 11% sequentially. As Canada's only discrete plate producer, Algoma has a genuine structural position in infrastructure, construction, and defense.
The policy tailwind is real. The federal and Ontario governments announced a joint steel action fund, Buy Canadian and Buy Ontario procurement measures, stronger trade enforcement, and a joint task force. “customers who have not, you know, usually bought from us are buying and even who have bought from us are buying more.” — Rajat Marwah, Chief Executive Officer · 2026-10-29 That is the Buy Canadian theme moving from rhetoric to orders. It is also part of a broader trade defense mechanism wave: the phrase was a top-20 global keyword this quarter, and steel peers GGB and GOAU4 used the same language. Algoma's version is more company-specific because of its plate niche, but the policy impulse is shared across the steel industry.
The open question is the beam mill. Management still talks about diversification and government support, but there is no funded project yet. The Canadian policy put is helpful; it is not a substitute for volume.
Liquidity buys time, not independence
The balance sheet is the quiet risk. Algoma ended the quarter with C$152.4 million of cash, C$232.5 million of unused revolver availability, and C$43.5 million available under the LETL facilities — C$428 million of total liquidity. Operating cash flow was C$78.6 million, driven by C$163.9 million of income tax refunds and inventory release, with another C$35 million of tax recovery and C$45 million of insurance proceeds received after quarter-end. That is why the revolving credit facility was essentially undrawn.
But Q4 will build raw material working capital, absorb the Haverhoke settlement, and fund the ramp. Capex was C$67.7 million in the quarter, including the EAF Unit 2 spend and a down payment on the replacement turbine. The lease turbine adds redundancy, and the all-in turbine cost is about US$35 million, with the balance to be financed over four years. This is a company that has bought time, not yet one that is self-funding. The first commercial heat is a genuine milestone; the next milestone is demonstrating that 1.2 million tons of 2027 volume can cover the fixed cost base before liquidity becomes the constraint.