Algoma Steel outlines accelerated EAF transition and $500M government support amid U.S. tariff disruption

Earnings Call Insights: Algoma Steel Group Inc. (ASTL) Q3 2025

MANAGEMENT VIEW

* CEO Michael Garcia opened by emphasizing Algoma's ongoing commitment to workplace safety and highlighted three central themes for the quarter: "The U.S. 50% tariffs have effectively closed that market to us, driving lower shipments and higher production costs as we've pivoted our entire go-to-market strategy." Garcia detailed the company's capital strengthening through $500 million in government support and an expanded USD 375 million ABL facility, stating, "We have embarked on an operational pivot, accelerating our EAF transformation and focusing on products for the domestic market with the goal of significantly reducing our cash burn."
* Garcia described the industry as facing "significant disruption" due to U.S. tariffs, leading to lower shipment volumes and elevated cost pressures. He also noted the plate mill as a bright spot, reporting plate shipments of approximately 97,000 tons in the quarter, and anticipated increased Q4 plate production.
* Regarding the electric arc furnace (EAF) project, Garcia reported that "commissioning and ramp-up activities for Unit 1 have progressed in line with expectations," with a cumulative investment of $910 million by September 30, 2025, and a final projected cost of $987 million.
* Garcia announced his retirement at year-end, with CFO Rajat Marwah appointed as the next CEO effective January 1, 2026, and Michael Moraca promoted to CFO.
* CFO Rajat Marwah stated, "Adjusted EBITDA was a loss of $87.1 million. For the quarter, tariffs expense totaled $90 million, and we estimate Canadian sales prices were approximately 40% lower on account of tariffs, resulting in lower revenue of approximately $32 million."

OUTLOOK

* Management expects a "significant inventory drawdown beginning in the fourth quarter and accelerating through 2026 as we exit the blast furnace and coke oven operations and transition to a far more efficient EAF-based supply chain."
* Marwah explained, "A combination of our strategic operational pivot, liquidity support, working capital efficiency improvements and continued effort on driving down cost is expected to extend our liquidity runway well into the future as we look to capture opportunities and diversify the business."
* The company is focusing on completing the EAF ramp-up, pursuing diversification, and further aligning with domestic infrastructure, construction, and renewable energy sectors.

FINANCIAL RESULTS

* Adjusted EBITDA for Q3 was a loss of $87.1 million.
* Tariffs costs for the quarter were $90 million.
* Cash used in operating activities was $117.3 million, with quarter-end liquidity at $337 million.
* Steel revenue reached $473 million, with shipment volumes at 419,000 net tons.
* Net sales realization averaged $1,129 per ton, while cost per ton sold averaged $1,282.
* Net loss was $485.1 million, primarily due to a $503 million noncash impairment loss triggered by market capitalization falling below net asset value and the impact of U.S. tariffs.
* Inventories stood at $790 million, up $54 million from Q2, partly due to a $14.8 million noncash write-down.
* The company secured $500 million in government liquidity support and expanded its ABL facility to USD 375 million.

Q&A

* Ian Gillies, Stifel: Asked about production profile for 2026 and EBITDA breakeven given continued tariffs. Garcia responded that the company is "accelerating...transition to full EAF production basically a year early," and Marwah indicated volumes could be "as close as 1 million to 1.2 million tons for the year" with EBITDA approaching breakeven after the transition.
* Gillies: Questioned sequential plate production. Marwah attributed lower Q3 plate output to maintenance outages but stated, "We're running our plate mill at full production other than the days we need to take for maintenance."
* Gillies: Asked about expected capital infusions from insurance, government grants, and tax refunds. Moraca estimated "somewhere between $30 million and $50 million more to come" from insurance, and a "significant working capital release over the next 12 months...north of $100 million, $150 million."
* James McGarragle, RBC: Inquired about updated CapEx and working capital for Q4. Marwah said CapEx would decline as blast furnace operations wind down and highlighted an expected working capital release.
* McGarragle: Queried EAF cost targets. Marwah stated initial cost would be "scrap plus USD 220 to 250," declining as production scales.
* McGarragle: Asked if Canadian market could support 2.5 million tonnes. Garcia said the market "has not -- is not yet fully developed," but expects future demand from national projects.
* Gillies: Asked about trade barriers' impact. Garcia stated, "We've shared our frank views...there's more that they could do," noting strong national interest in Algoma's capabilities.
* Gillies: Asked about plate demand from new initiatives. Garcia said the plate market is roughly 600,000 to 700,000 tonnes, with Algoma capturing about 50%.
* Gillies: Sought clarity on credit facility usage. Marwah explained the company would draw on secured lines first to manage dilution and interest.

SENTIMENT ANALYSIS

* Analysts expressed concern over cash burn, EBITDA trajectory, market demand, and the sustainability of the company’s strategic pivot, with a neutral to slightly negative tone focused on risks posed by tariffs and market development.
* Management maintained a confident tone on transformation and liquidity, with phrases such as "We are building a company that is leaner, more focused and more competitive" and "we are creating a stronger, more resilient enterprise."
* Compared to the previous quarter, the current call featured more defensive responses and a heightened sense of urgency, especially regarding the impact of tariffs and the operational pivot.

QUARTER-OVER-QUARTER COMPARISON

* Guidance shifted from exploring scenarios for prolonged tariffs and seeking government support in Q2 to securing $500 million in government liquidity and accelerating the EAF transition by a year in Q3.
* Key metrics deteriorated, with higher adjusted EBITDA loss, increased cash burn, and a substantial noncash impairment loss in Q3 versus Q2.
* Management tone became more urgent and focused on domestic realignment, while analysts sustained a cautious stance.
* Strategic priorities evolved from managing through uncertainty to executing a decisive operational pivot and leadership transition.

RISKS AND CONCERNS

* Management cited the U.S. 50% tariffs as a primary risk, leading to lower shipments, higher costs, and the closure of cross-border business.
* The company is exposed to oversupply and depressed pricing in the Canadian market.
* Cash burn and a significant noncash impairment loss were highlighted.
* Mitigation strategies include government liquidity support, accelerated EAF transition, and a focus on domestic market alignment.
* Analysts raised concerns about market demand, cost targets, working capital, and credit facility usage.

FINAL TAKEAWAY

Algoma Steel is navigating a period of major disruption by accelerating its transition to electric arc furnace production, pivoting toward high-value domestic products, and securing $500 million in government support to strengthen liquidity. Management is confident that these strategic changes, coupled with a leadership transition and renewed operational discipline, will position the company for long-term resilience and relevance in Canada's industrial landscape, despite ongoing trade uncertainty and near-term financial headwinds.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/astl/earnings/transcripts]

MORE ON ALGOMA STEEL GROUP

* Algoma Steel Group Inc. (ASTL) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4836083-algoma-steel-group-inc-astl-q3-2025-earnings-call-transcript]
* Algoma Steel Group Inc. 2025 Q3 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4835573-algoma-steel-group-inc-2025-q3-results-earnings-call-presentation]
* Algoma Steel Faces Weak Demand Challenges, Cautious Approach Required [https://seekingalpha.com/article/4814805-algoma-steel-faces-weak-demand-challenges-cautious-approach-required]
* Algoma Steel Group CEO Michael Garcia to retire [https://seekingalpha.com/news/4510851-algoma-steel-group-ceo-michael-garcia-to-retire]
* EU proposes tougher steel tariffs in bid to protect industry [https://seekingalpha.com/news/4502462-eu-proposes-tougher-steel-tariffs-in-bid-to-protect-industry]