Union Chief Objects to Algoma EAF on Job, Scrap Concerns

“We’re not going to be props for management just to trot us out and make it look like we were involved and we’re in favor of it,” DaPrat said in an interview with Steel Market Update.

The Sault Ste. Marie, Ontario-based flat-rolled steelmaker has two unions, Local 2251, which represents hourly employees, and Local 2724, which represents salaried workers.

Local 2251’s case against the EAF – despite $340 million in government funding – stems from concerns about jobs losses, scrap sourcing, and long-simmering disagreements with Algoma management.

Jobs and Scrap

“Theoretically, if they go 100% EAF, you have no more coke ovens and no more iron making. And all the service groups – maintenance, transportation, etc – that we use to process that,” DaPrat said. He estimated that potential job losses “would probably be in the hundreds.”

Algoma did not respond to a request for comment for this article.

But the company has told a local media outlet that the switch to an EAF would occur over several years. And so any job losses could be offset by anticipated retirements over that time. And the change could also provide new opportunities for employees who stay, a company spokeswoman told SooToday.com, which first reported the news.

DaPrat also questioned where the scrap to feed the new EAF would come from and whether it could be sourced at a competitive price given that approximately 70% of North American steelmaking capacity is already EAF-based and that projects similar to Algoma’s are likely to be announced soon.

“You can’t keep running the same scrap forever,” he said. “At some point in time … steel made by the coal-fired process is going to be necessary. So are we all going to become dependent on somebody making pig iron in China?”

The scrap pool becomes more polluted over time with impurities, such as copper, that can make steel brittle. This is part of the reason why steelmakers such as Cleveland-Cliffs, Nucor and Stelco have invested in scrap alternatives such as direct-reduced iron (DRI), hot-briquetted iron (HBI) and pig iron.

DaPrat also noted that early adopters of the EAF route, Nucor, for example, benefitted from the abundance of scrap originating from steel made by the integrated route – by companies such as U.S. Steel, Stelco, Algoma and the former Bethlehem Steel.

“If we’re all going to arc furnaces, who is going to provide the raw product?” he asked.

The amount of scrap necessary could be high. Algoma makes approximately 3.3 million tons of steel per year. And more than that amount of scrap would be necessary to support an EAF of similar capacity. With “everybody else” switching to EAF steelmaking, “where the hell is all that scrap going to come from?” DaPrat asked.

New capacity in North America – think Big River Steel in Osceola, Ark., or Steel Dynamics Inc.’s new mill in Sinton, Texas – is EAF-based. U.S. Steel has switched from the integrated route to the EAF route at its Fairfield Works in Alabama. European steelmakers such as Sweden’s SSAB are also preparing to switch from the coal-intensive integrated route to the DRI-EAF route. And CRU Senior Analyst Ryan McKinley predicted at SMU’s virtual New York Steel Seminar last month that Algoma’s announcement “may be followed by some others.”

Increased demand for scrap will be offset in part by increased supplies of ore-based metallics such as DRI, HBI and pig iron that can be used as scrap substitutes. “Potentially we’ll see more pig iron produced here in the U.S. But overall it’s going to be more challenging to get your raw materials,” McKinley said at the event.

Supplying Algoma with raw materials shouldn’t be an insurmountable hurdle. Big Canadian scrap dealers such as Triple M Metal and American Iron & Metal (AIM) should be able to ship to Algoma economically. And Algoma might also be a “natural home” for pig iron produced at Stelco and potentially from Cleveland-Cliffs as well, a scrap and pig iron expert told SMU.

Stelco has commissioned a pig iron caster with capacity of one million tons per year at its steel mill in Nanticoke, Ontario, aimed at supplying merchant pig iron. Cliffs has considered selling merchant pig iron and DRI/HBI, but has more recently indicated it might keep that production for internal use only.

But that could change. “And there are still some existing plans to develop more HBI plants in Canada and perhaps Minnesota,” the scrap and pig iron expert said.

The takeaway: “They (Algoma) will be able to adequately source. But at who’s expense?” he said.

Who Decides Who Pays the Bill for Reducing CO2?

SMU questioned whether Algoma Steel risked losing more jobs if Canada did not meet its pledge to be carbon neutral by 2050. What if, for example, the company faced substantially increased costs for carbon emissions, so high that they might pose an existential threat?

DaPrat responded by questioning why the steel industry should bear the brunt of reducing carbon emissions and whether other areas, such as truck freight and passenger vehicles, couldn’t be asked to do more.

“We’re supposed to be addressing carbon. And we should be doing it through transportation, the steel industry and everyone else – not just the one freaking steel plant because you can make a flashy announcement,” he said.

And perhaps at the root of Local 2251’s opposition is a long-running dispute between management and the union over the USW’s role in big capex decisions.

The company has gone through three Canada’s Companies Creditors Arrangement Act (CCAA) proceedings – roughly the equivalent of Chapter 11 in the U.S. – since the early 1990s. One in 1992, another in 2001 and a third in 2015. Steel market downturns were partly responsible for those bankruptcies. But so too were big capital investments that led to unsustainable debt loads, DaPrat said.

The union was typically told that incurring the debt was necessary to install new technology to remain competitive. That was the case in 1994-95, for example, when Algoma raised money for a new direct strip production complex (DSPC). The union had a majority stake in the company at the time and agreed to sell its shares to help fund the project. In exchange, the union bargained for language in its labor agreement specifying that the company would engage Local 2251 “on a consultative basis” in future projects, he said.

The union thinks that was not the case with the EAF project. “From the announcement … it sounds like they’re well along the way. So they didn’t involve us at the beginning,” DaPrat said.

By Michael Cowden, Michael@SteelMarketUpdate.com