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Algoma Steel Group (ASTL) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Materials· Jul 30, 2026

Source: earnings call transcript

Executive summary

Algoma Steel Group Inc. Q2 FY26 — EAF Transition Progresses, Plate Sales Record

Algoma Steel continued its EAF transition in Q2 FY26, achieving positive adjusted EBITDA despite a challenging market and lower volumes. The company set a new record for plate sales, benefiting from a Canada-centric, plate-first strategy and improved product mix. While facing tariff headwinds and temporary volume reductions for EAF Unit 2 commissioning, management expects underlying EBITDA to improve sequentially as transition costs decline and liquidity remains robust.

Highlights

5

  • Generated positive adjusted EBITDA of $13.8 million, including a $45 million insurance settlement and $54.7 million capacity utilization adjustment.

  • Delivered a second consecutive quarter of record plate sales, with shipments of 125,000 tons, up from 116,000 tons in Q1 FY26.

  • Average net sales realization rose to $1,361 per ton, up 20.2% from the prior year quarter, driven by improved product mix.

  • Capacity utilization adjustment costs are on track to be fully eliminated by Q4 FY26, down from $90.2 million in Q1 FY26.

  • Total available liquidity at quarter end was approximately $437 million, including $62.6 million cash and $206.7 million unused revolver availability.

Concerns

5

  • Incurred $18.7 million in direct U.S. Section 232 tariff costs in the quarter, despite reduced U.S. volumes.

  • Consolidated revenue declined to $267.5 million from $589.7 million in the prior year quarter due to EAF transition and reduced shipments.

  • Cost per ton of steel products sold increased to $1,411 per ton from $1,144 per ton in the prior year, reflecting lower fixed cost absorption at reduced volumes.

  • Net loss in the quarter was $96 million, compared to $110.6 million in the prior year quarter.

  • Third quarter shipments are estimated to be directionally lower by 10% to 20% versus Q2 FY26 due to scheduled operational downtime for EAF Unit 2 tie-in and maintenance.

Guidance & targets

CategoryTargetConfidence
EAF Unit 2 first production
Later this quarter
high materiality
High
Annual raw steel production capacity
Approximately 3.7 million tons
high materiality
High
Annual carbon emission reduction
Approximately 70%
high materiality
High
Capacity utilization adjustment elimination
Fully eliminated
medium materiality
High
Income tax refunds
Approximately $200 million
high materiality
High
Q3 FY26 Shipments
Directionally lower by 10% to 20% versus Q2 FY26
medium materiality
High
Underlying EBITDA performance (ex-CU adjustment)
Continue to improve sequentially
high materiality
High

Deals & partnerships

Rochelle Establishing a Canadian center of excellence for ballistic steel production with full cycle capabilities in fabrication, forming, welding, and machining.

Joint venture formed in April with Rochelle, a Canadian-owned defense manufacturer.

Hanwha Ocean Strategic relationship for potential structural steel beam development.

Binding MOU suspended as Government of Canada selected TKMS as preferred bidder for Canadian Petrol Submarine Program. Strategic rationale for pursuing structural steel beam remains unchanged.

Capital programs

EAF Transition underway
Funding: LETL facilities (partially)

Benefit:3.7 million tons annual raw steel production capacity; 70% carbon emission reduction

Construction on second EAF unit nearing completion, commissioning activities commencing. First full quarter with all liquid steel production from EAF platform. Capacity utilization adjustment costs expected to be fully eliminated by Q4 FY26.

Risks & headwinds

U.S. Section 232 Tariff Ongoing

$18.7 million in direct tariff costs in Q2 FY26

Mitigation:Reduced volumes shipped to the U.S., pivot to Canada-centric plate-first strategy.

Canadian Market Oversupply Q2 FY26

Coil pricing lower than US benchmark

Mitigation:Pivot to a Canada-centric plate-first strategy.

EAF Ramp-up Complexity Throughout 2026

Lower fixed cost absorption at reduced production volumes; throughput increasing daily as equipment learning curves and process stabilization occur.

Mitigation:Unit 1 operating 24-hour schedule, quality metrics achieved. Unit 2 nearing completion, scheduled operational downtime in Q3 for tie-in and maintenance.

Legal Proceedings on Supply Agreements Ongoing

Not quantified

Mitigation:Company taking position that agreements frustrated by extraordinary and unforeseen tariff environment; believes it has valid legal remedies and defenses.

What to watch in Q3 FY26

EAF Unit 2 First Production

Later this quarter (Q3 FY26)
Current Nearing completion, commissioning underway
Target First production

Why it matters

Marks a major milestone in the EAF transition, enabling full capacity ramp-up and improved operational efficiency.

Construction on our second EF unit is nearing completion, with commissioning and testing of critical equipment underway. We expect first field production from Unit 2 later this quarter.

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Q&A highlights

Is the estimated 10-20% sequential volume decline in Q3 due to demand/seasonality or maintenance work?

The decline is primarily due to scheduled maintenance activities, including work at the power plant, the first EAF unit, and tie-in activities for Unit 2, all bundled to prepare for Q4 with both units online.

“We're trying to put all of the maintenance activities in place ahead of Unit 2 coming online, which includes some work at our power plant.”

asked by Katja Jancic · answered by Michael Moroca

2 min read 5 chapters

Detailed narrative

EAF Transition Progress

Algoma Steel is in the final stage of its EAF transition, with the first unit running 24/7 and the second unit nearing completion and commissioning. This marks a significant shift from over a century of integrated operations, aiming for an annual raw steel production capacity of approximately 3.7 million tons and a projected 70% reduction in carbon emissions from pre-EAF levels. The ramp-up is complex, involving equipment learning curves and process stabilization.

Plate-First Strategy and Market Response

The company is executing a Canada-centric, plate-first strategy, which resulted in a second consecutive quarter of record plate sales, with shipments reaching 125,000 tons. This strategic pivot is a direct response to a challenging industry backdrop, including the persistent 50% U.S. Section 232 tariff on steel imports from Canada, which incurred $18.7 million in direct costs this quarter. The strategy aims to leverage Algoma's unique competitive position as Canada's only producer of discreet plate.

Market Conditions and Tariffs

The Canadian market continues to experience supply pressure, leading to coil pricing trading lower than the U.S. benchmark due to domestic oversupply. The U.S. Section 232 tariff remains a structural headwind, influencing the company's decision to reduce U.S.-bound shipments. Despite these challenges, the rise in steel pricing is seen as an encouraging sign, reinforcing the validity of the plate-first strategy.

Strategic Diversification Initiatives

Algoma Defense, a joint venture formed in April with Rochelle, is establishing a Canadian center of excellence for ballistic steel production, enhancing Canada's industrial and defense supply chain. While a binding MOU with Hanwha Ocean was suspended following the Canadian Patrol Submarine Program selection, Algoma continues to pursue structural steel beam development and engage with federal and provincial governments to support Canada's infrastructure and defense priorities.

Liquidity and Financial Outlook

Algoma Steel ended the quarter with approximately $437 million in total available liquidity, comprising cash, unused revolving credit facilities, and available LETL facilities. Management anticipates several positive cash flow items over the remainder of 2026, including the recovery of approximately $200 million in income tax refunds. These inflows, combined with declining capacity utilization costs and lower capital intensity, are expected to bolster liquidity and improve profitability as the EAF ramp-up progresses.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.