Algoma Steel Group Inc. (ASTL) Q3 2026 earnings review
Algoma starts its second electric furnace, but cash burn continues
Algoma Steel Group Inc., a Canadian maker of steel plate and sheet, finished its second electric furnace while burning cash on low single-furnace volume. Third-quarter revenue dropped by half from a year ago as shipments fell 66%, depressed by the January blast-furnace shutdown, 50% US tariffs, and a 12-day power outage. Shifting sales toward thick plate lifted average selling prices 34%, and a $164 million tax refund kept cash balances high.
| Revenue | $249.4M -52.4% from a year ago |
|---|---|
| Steel shipments | 144.5k tons -20.4% from last quarter |
| Net selling price per ton | $1,510 +33.7% from a year ago |
| EAF Unit Two outlook | Ramping First steel Oct 9; adding to Q4 volume |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because completing the second electric furnace offsets a slower reduction in legacy factory overhead. Chief executive Rajat Marwah poured first steel at the second furnace on October 9 and settled the Haverhill coke lawsuit, removing two transition hurdles. One caution: the accounting add-back for unused plant capacity barely budged at $53 million, and by our math operations burned $105 million of cash before tax refunds and insurance, leaving $44 million on the government loan line.
The question now is whether the second furnace can lift volume fast enough to cover fixed factory costs before government loan capacity runs out. Either higher production cuts unit costs and stops the cash drain, or an oversupplied Canadian sheet market forces Algoma to run the new furnace below capacity. Fourth-quarter shipment volume and unit costs will tell.
🐂 Bull Case
Second Electric Furnace Pours First Steel
"Earlier this month, we produced first steel at EAF Unit Two, a major milestone for Algoma," chief executive Rajat Marwah said. An electric arc furnace (EAF) melts scrap steel using electricity rather than coal, and this second unit completes the plant's multi-year rebuild after Algoma shut its blast furnace in January. The new unit poured its first batch of liquid steel on October 9, nine days after the third-quarter target, and turned it into hot-rolled coil.
Completing the second furnace matters because running a steel mill on a single furnace leaves too little volume to cover factory overhead. With only the first furnace operating, shipments dropped 65.5% from a year ago to 144,527 tons, which pushed manufacturing cost per ton up 16.4% to $1,492. Bringing the second unit online lets Algoma increase production toward its 3.7-million-ton annual capacity and spread fixed costs across more tons.
What to watch: fourth-quarter steel shipments and manufacturing cost per ton. A sharp jump in volume from the second furnace, paired with a drop in cost per ton below $1,411, would show that higher output is fixing the mill's unit economics.
Plate Pivot Lifts Selling Prices by a Third
Algoma is Canada's only producer of discrete plate, a thick flat steel used in bridges, ships, and military vehicles. To counter a 50% US import tariff, the steelmaker chose to "concentrate production on discrete plate, where it benefits from a pricing premium and a unique market position." It also continued developing Roshel Algoma Defence, its joint venture formed in April to make ballistic steel in Canada.
- Average net selling price: $1,510 per ton, up 33.7% from a year ago and up 11.0% from last quarter
- US share of total shipments: 24%, down from 50% a year ago
- Direct tariff expense: $18.1 million, down from $89.7 million a year ago
Pulling back from the United States cut direct tariff bills by nearly four-fifths, while selling a higher mix of plate pushed realized prices $18 per ton above unit manufacturing costs. That pricing gain cushioned the blow of losing more than half of the mill's total shipment volume during the furnace transition.
What to watch: exact plate shipment tonnage in the third-quarter filing and fourth-quarter report. Sustained growth above the second quarter's 125,000-ton record would prove domestic infrastructure and defence buyers can absorb the new furnace's output.
🐻 Bear Case
Tax Refunds and Loans Mask Heavy Cash Burn
Algoma reported $78.6 million of cash generated by operating activities and ended September with $428 million in total liquidity, finance chief Michael Moraca noted. That headline cash generation rested entirely on one-time collections rather than steelmaking profits, and the producer drew another $124.5 million from its government tariff loan facilities (LETL) during the quarter.
- Operating cash flow excluding $163.9 million tax refund and $19.4 million insurance proceeds: -$104.7 million by our math
- Free cash flow excluding tax refund and all insurance proceeds: -$146.8 million by our math
- Remaining government loan capacity: $43.5 million, down from $168.0 million last quarter
- Taxes receivable left on the balance sheet: $50.9 million, down from $217.8 million last quarter
This matters because the two cash cushions that funded the plant transition in 2026 are almost gone. At the third quarter's underlying burn rate, the remaining government loan line and tax receivables cover less than one quarter of losses, so the two electric furnaces must cut cash burn quickly to preserve the $232.5 million credit line and $152.4 million cash balance.
What to watch: fourth-quarter operating cash flow before working-capital swings and one-off collections. A figure that stays deeply negative would mean the second furnace is not ramping fast enough to stop the liquidity drain.
Legacy Overhead Cut Barely Moved in Q3
"Adjusted EBITDA loss of $13.9 million came in line with our previously disclosed guidance," finance chief Michael Moraca said. Adjusted EBITDA is earnings before interest, taxes, depreciation, and one-offs, and Algoma's calculation excludes "capacity utilization" costs—the extra fixed overhead carried from its closed blast-furnace setup. Management previously told investors this legacy charge would fall steadily and vanish by the fourth quarter.
Instead, the capacity utilization add-back barely budged, slipping from $54.7 million in the second quarter to $53.1 million in the third. Without that accounting add-back, the steelmaker's Adjusted EBITDA loss was $67.0 million by our math. On the income statement, cost of sales—the direct cost of making steel and paying tariffs—rose by 8.6 percentage points of revenue from a year ago to 130.9%, while administrative and selling overhead rose 1.0 percentage point to 7.0%.
What to watch: the capacity utilization adjustment in the fourth-quarter earnings release. Any remaining add-back above zero would break management's timetable and show that excess plant overhead is sticking around into 2027.
Canadian Sheet Glut Meets New Furnace Supply
The 50% US Section 232 tariff on Canadian steel stayed in place during the third quarter and expanded to cover more downstream steel products. Because Canadian mills cannot profitably ship their usual volumes south, domestic producers are keeping steel at home, while US mills still ship into Canada and overseas producers offer steel at prices Algoma considers "below fair market value."
This domestic glut creates a problem as Algoma turns on its second electric furnace. The first furnace already handles the company's plate orders, and the second unit processed its first steel into hot-rolled coil—the exact sheet product facing the worst oversupply in Canada. Marwah praised a late-October federal and Ontario government support announcement, but until trade barriers or market supply shift, selling extra coil in Canada will pressure prices.
What to watch: average net selling price per ton in the fourth quarter as Unit Two adds coil volume. A drop from the third quarter's $1,510 per ton would show that ramping sheet production is diluting the price gains from plate.
👓 Other Themes
Power Outage Triggered a New Turbine Purchase
An August 17 turbine failure at Algoma's Lake Superior Power plant forced a 12-day pause in electric furnace steelmaking until grid arrangements allowed a restart on August 29. To restore full power on September 30, the company bought a replacement turbine during the quarter, plans to install a leased unit in the fourth quarter as a backup, and is seeking a four-year loan to finance the purchase.
Haverhill Coke Dispute Settled, Others Remain
In October, Algoma settled its legal dispute with Haverhill Coke Company over cancelled coal-era supply contracts "without any admission of liability or wrongdoing by either party." The company recorded $12.3 million in legal settlement and legacy contract expenses in the third quarter, up from $11.2 million last quarter, while other raw-material contract lawsuits from the blast-furnace shutdown remain unresolved.
💲 Other KPIs
Stockpiles fell 6.9% from $449.0 million last quarter and are down 26.6% from $569.3 million at the end of 2025. Working down raw materials left over from the closed blast furnace freed up cash during the first nine months of the year, though it also reduces the collateral backing the bank credit line.
By our math, total debt across bank lines, senior notes, and government loans rose from $917.0 million last quarter and $744.1 million a year ago. The steelmaker used $129.4 million of new government loan cash and its tax refund to pay down $71.6 million of short-term bank debt, lifting unused bank credit to $232.5 million.
Spending on property, plant, and equipment rose from $29.0 million last quarter and $52.4 million a year ago, reaching 27.1% of revenue by our math. Final construction on the second electric furnace and the purchase of a replacement power turbine drove the increase, which was partly offset by $25.6 million of property insurance proceeds.
🔮 Guidance
On track after a nine-day slip. The second electric furnace poured its first steel on October 9 and is now ramping up to add shipment volume in the fourth quarter. Management did not issue a numerical fourth-quarter shipment target, leaving its old 1.0 to 1.2 million ton full-year target—which would require 550,000 tons in Q4 by our math—unmentioned.
Unchanged. Once both electric furnaces finish ramping up, the plant is designed to produce about 3.7 million tons of raw steel a year and cut carbon emissions by about 70% compared with coal-based steelmaking.
❓ Key Questions
What were third-quarter plate shipment tons?
The release states that plate volume grew from a year ago, when the mill shipped 97,000 tons, but omits the exact figure. Investors need the number from the full filing to see if plate topped the second quarter's 125,000-ton record.
Why did the unused-capacity charge barely fall in Q3?
Management previously said the capacity utilization adjustment would drop steadily from $54.7 million in Q2 and hit zero in Q4. Instead it was $53.1 million in Q3, raising the question of whether legacy fixed costs will linger into 2027.
What did the Haverhill settlement and new turbine cost?
Algoma settled its coke dispute with Haverhill in October and bought a replacement power turbine during the third quarter, but did not disclose the cash payout for the settlement or the price and loan terms for the turbine.
What is the fourth-quarter shipment and EBITDA outlook?
The earnings release gives no numerical outlook for Q4 shipments, unit costs, or earnings. On the call, investors need to know the expected Q4 production rate for Unit Two and whether Q4 break-even EBITDA is still achievable.