Algoma Steel (ASTL) Q2 2026 earnings review
Positive Adjusted EBITDA Masks Massive Operating Bleed
Algoma reported $13.8M in Adjusted EBITDA for Q2, hitting guidance, but the quality of these earnings is extremely poor. The 'profit' is entirely manufactured by a $45M insurance settlement and a $54.7M add-back for legacy transition costs. In reality, the company posted a $134.2M operating loss and burned $79.4M in operating cash. Shipments collapsed 62% YoY as the 50% U.S. tariffs permanently severed historical export channels. The silver lining is the execution of their 'Plate-First' strategy, driving realized prices up 20%. Algoma's survival hinges completely on finishing its Electric Arc Furnace (EAF) ramp-up and shedding its legacy fixed costs by Q4.
🐂 Bull Case
The massive 'capacity utilization' penalties dragging down margins are fading. These excess fixed costs dropped from $90.2M in Q1 to $54.7M in Q2 and are guided to hit zero by Q4.
By shifting focus to domestic discrete plate (where it is Canada's only producer), average realized prices surged 20% YoY to $1,361/ton, shielding Algoma from the deeply discounted Canadian coil market.
🐻 Bear Case
Despite higher selling prices, cost per ton exploded to $1,411 due to horrific fixed-cost absorption on 62% lower volumes. The company is losing roughly $50 on every ton of steel it sells before operating expenses.
The highly touted US$250M MOU with Hanwha Ocean for a potential structural beam mill and defense purchases has been suspended after Hanwha lost the Canadian Patrol Submarine bid.
⚖️ Verdict: 🔴
Bearish. Management is executing the EAF transition as promised, but the underlying business is hemorrhaging cash. The 'positive' EBITDA narrative is heavily distorted by one-time insurance payouts and massive structural add-backs.
Key Themes
Plate-First Pivot Driving Pricing Power
Accelerating. Algoma's deliberate shift away from the oversupplied, tariff-crushed coil market to discrete plate is yielding tangible results. The company delivered a second consecutive quarter of record plate sales. This strategic mix shift drove average net sales realization per ton up 20.2% YoY to $1,361. As Canada's sole discrete plate producer, this segment is their only defense against plunging commodity steel prices.
Gross Margins Remain Deeply Negative
Decelerating. Despite the 20% jump in realized prices, the cost to produce steel is rising faster. Cost per ton reached $1,411 in Q2 (up from $1,144 a year ago). The root cause is atrocious fixed-cost absorption resulting from the EAF ramp-up and a 62% collapse in volume. Selling steel for $50 less than it costs to make is unsustainable, severely contradicting the positive Adjusted EBITDA headline.
The Path to Elimination of Legacy Costs
Accelerating. The entire thesis for Algoma's return to profitability rests on the 'capacity utilization adjustment'—excess costs tied to the old blast furnace configuration. This penalty was $90.2M in Q1, dropped to $54.7M in Q2, and is guided to be fully eliminated by Q4. As this ghost cost vanishes, true operating leverage should finally appear.
U.S. Market Effectively Dead
Stable. The 50% U.S. Section 232 tariff has permanently broken Algoma's historical business model. While direct tariff costs dropped to $18.7M (from $64.1M a year ago), this isn't a victory—it reflects Algoma abandoning the market. U.S. shipments fell to just 23% of the mix, down from 54% a year ago and historical norms of ~50%. Algoma is now trapped in a smaller, oversupplied domestic arena.
Defense Pivot Hits a Major Speedbump
Reversing. A key pillar of the 'Canada-First' narrative was the US$250M MOU signed with Hanwha Ocean for a structural beam mill and submarine steel. With the Canadian government awarding the submarine contract to Thyssenkrupp instead, this MOU has been suspended, stripping Algoma of a major future demand catalyst.
EAF Transition Execution (Volta Green Steel)
Stable. The physical transition is proceeding as modeled. Q2 marked the second full quarter sourced entirely from EAF Unit One. Crucially, EAF Unit Two is nearing completion, with first steel expected in Q3 2026. Once complete, this creates a 3.7 million ton capacity platform with 70% lower emissions, positioning Algoma for green infrastructure bids.
Other KPIs
Reversing deeply from -$12.2M in Q1 and -$37.9M in the prior-year quarter. Despite the positive Adjusted EBITDA, the underlying cash burn is severe. The company survived this quarter's burn by taking down $124.5M in advances from governmental loan (LETL) facilities.
Decelerating from $553 million in Q1. Comprises $62.6M in cash, $206.7M untouched on the revolver, and $168.0M remaining on the LETL. While ample to finish the EAF build (CapEx was only $29M this quarter), prolonged negative gross margins will rapidly erode this safety net.
Guidance
Stable. Commissioning is on schedule to begin next quarter, which will significantly bolster production capacity and should help dilute fixed costs over a larger volume base.
Accelerating cost relief. Management reaffirmed that the excess fixed costs from the legacy blast furnace configuration (which hit $54.7M in Q2) will continue to decline and be fully eliminated by the fourth quarter.
Accelerating. The company expects plate production to continue climbing as the EAF ramp-up progresses, reinforcing their mix-shift strategy away from toxic coil pricing.
Key Questions
Replacing the Hanwha MOU
With the Hanwha Ocean MOU suspended, how does this impact the timeline and capital justification for the structural beam mill project? Are you actively courting Thyssenkrupp for a similar arrangement?
Spread Economics and Gross Margin
Cost per ton remains above realized price per ton. Is the current spread between Canadian scrap inputs and domestic plate pricing sufficient to generate positive gross margins once volume normalizes, or does the domestic market require further price recovery?
Government Loan Dependency
You drew $124.5M from the LETL facilities this quarter to cover operating cash burn. Assuming capacity transition costs hit zero in Q4, what is the timeline to break-even free cash flow without relying on further government advances?