Algoma Steel Group (NASDAQ:ASTL) said its fiscal first quarter of 2026 marked a major operational transition as the company permanently halted blast furnace operations and continued ramping up its new electric arc furnace platform, while navigating lower shipments, elevated transition costs and U.S. steel tariffs.
Chief Executive Officer Rajat Marwah said the Jan. 18 shutdown of blast furnace operations ended 125 years of coal-based integrated steelmaking at Algoma and more than 50 years of production at its No. 7 Blast Furnace. He described the move as “a defining moment” for the company and said Algoma is now “a fully electric arc furnace operation.”
Shipments fall as EAF ramp continues
Chief Financial Officer Michael Moraca said Algoma shipped approximately 224,000 net tons in the quarter, down 52.4% from the prior-year period. He noted that the year-ago quarter reflected production from a fully operating blast furnace platform, which no longer exists.
Steel revenue was $266.9 million, down 42.4% from the prior-year period, as lower shipment volumes more than offset stronger realized pricing. Algoma’s average net sales realization rose 21% to $1,193 per ton from $986 per ton a year earlier, reflecting a deliberate mix shift toward discrete plate products.
Marwah said the company achieved record plate sales of 116,000 net tons during the quarter and expects further upside as its “plate-first strategy” scales. He said demand in infrastructure, construction and defense end markets remains healthy, and emphasized Algoma’s position as Canada’s only producer of discrete plate.
On the electric arc furnace ramp, Marwah said the Unit 1 furnace and associated melt shop are “performing as designed,” with quality metrics achieved across a range of plate and hot rolled coil grades. He said the Q-One power system and other key components have demonstrated stable performance on a full 24-hour-per-day schedule.
Adjusted EBITDA loss narrows, transition costs remain elevated
Algoma reported an adjusted EBITDA loss of $28.7 million, or a negative 9.7% margin, compared with an adjusted EBITDA loss of $46.7 million, or a negative 9% margin, in the prior-year quarter. Moraca said the improvement in absolute terms was driven primarily by improved product mix.
The company recorded a $90.2 million capacity utilization charge in the quarter, which Moraca said reflected excess fixed costs carried beyond what was needed to operate the electric arc furnace and downstream operations at current production volumes. He said those costs primarily related to labor, fixed utilities, equipment and maintenance, and are expected to decline over the next two quarters and be fully eliminated by the fourth quarter.
During the question-and-answer session, Moraca said the capacity utilization adjustment should trend down “in a pretty linear fashion” from $90 million in the first quarter to zero in the fourth quarter. He also said Algoma still expects to be on a pathway to breakeven EBITDA by the fourth quarter.
Algoma’s cost per ton of steel products sold was $1,180, compared with $1,137 a year earlier. Moraca said the increase reflected $27.4 million in tariff costs and reduced fixed cost absorption at lower production volumes. The cost metric excludes the $90 million capacity utilization charge.
Tariffs shape commercial strategy
Marwah said the 50% U.S. Section 232 tariff on steel imports from Canada continues to define the company’s operating landscape. Algoma incurred $27.4 million in direct tariff costs in the quarter, down from the prior quarter as it reduced volumes shipped to the United States.
Marwah said Algoma is “more exposed to tariff than virtually any steel company in North America” and called the company’s focus on plate, de-emphasizing coil and orienting more toward the Canadian market the appropriate strategic response.
He said the Canadian market remains supply-pressured, with coil pricing constrained by domestic oversupply, import offers and the presence of U.S. Steel in the Canadian market. In response to analyst questions, Marwah said Algoma is being disciplined in coil orders and taking business that “makes sense,” while plate volumes are increasing.
Moraca said overall shipments are expected to be slightly lower in the second quarter, with plate volumes expected to be slightly higher and coil volumes flexed lower because of market conditions.
Liquidity and cash flow remain in focus
Algoma ended the quarter with $65.3 million in cash, $195 million of unused availability on its revolving credit facility and $292 million remaining under its LETL facilities, for total available liquidity of approximately $553 million.
Moraca said the company drew $126 million under the LETL facilities during the quarter, net of paid-in-kind interest, largely to offset operating cash consumption and support the transition. Capital expenditures were $20.4 million, down from $127 million in the prior-year quarter when electric arc furnace construction activity was much higher.
Moraca said Algoma expects its maintenance capital spending profile to run meaningfully below its historical sustaining capital level of approximately $120 million annually as it operates a newer, lower-maintenance electric arc furnace facility. He also said expected positive cash flow items in 2026 include approximately $200 million related to income tax refunds and remaining insurance proceeds tied to a previously disclosed claim.
Defense and diversification initiatives advance
Algoma highlighted two strategic initiatives tied to Canadian industrial and defense supply chains. Marwah pointed to the April announcement of Roshel Algoma Defence, a joint venture with Roshel Inc. intended to establish a Canadian center of excellence for ballistic steel production. He said the venture is designed to provide full-cycle capabilities including fabrication, forming, welding and machining in Canada.
Marwah also discussed Algoma’s binding memorandum of understanding with Hanwha Ocean, announced in January and valued at up to $250 million. The arrangement includes a potential $200 million contribution toward development of a structural beam mill and up to $50 million in anticipated product purchases tied to the Canadian Patrol Submarine Program. He said the agreement remains subject to Hanwha Ocean being awarded the contract and definitive agreements being executed.
In response to an analyst question, Marwah said the defense market is a smaller portion of overall steel consumption in Canada, similar to the U.S. market, but said Algoma is looking at the full supply chain and value-added opportunities such as fabrication, assembly and welding.
Marwah said the company is also working on an overseas sales strategy, with trials being planned and supply-chain discussions underway. He said Algoma does not expect much supply to occur in the current quarter or the next but expects work to be finalized toward year-end, with product supply beginning after that.
“The path back to profitability runs through scale, more EAF production, more plate tons, and a cost structure that improves with every additional heat we cast,” Marwah said. “We are not there yet, but the trajectory is the right one, and we have the liquidity to execute.”
About Algoma Steel Group (NASDAQ:ASTL)
Algoma Steel Group Inc is a North American steel producer headquartered in Sault Ste. Marie, Ontario. The company operates a modern electric arc furnace (EAF) complex and an integrated rolling mill, enabling it to transform scrap and direct reduced iron into a wide range of steel products. Algoma Steel Group returned to public markets in 2021 with listings on both the Toronto Stock Exchange and the Nasdaq under the symbol ASTL.
Founded in 1901 as Algoma Steel Corporation, the company grew to become one of Canada’s leading steelmakers before undergoing restructuring in the early 2000s.
