Algoma looks to sell more steel in Canada in wake of Trump's tariffs

Garcia spoke to SMU’s David Schollaert during a monthly Community Chat on Wednesday (A replay is available.)

“I can say, ‘I’m going to increase my price that I give you by 25%, because I’m paying a tariff.’ But you’re going to look at my price and say ‘Oh, I can get it from Algoma for $900 plus 25%, or I can get it from this (US) supplier for $900.’ If I do that, I’m going to lose out on every order,” Garcia said.

Note that SMU’s hot-rolled (HR) coil price stands at approximately $900 per short ton.

First arc on new EAF coming soon

That price squeeze is one reason Algoma is eager to get its new electric arc furnaces (EAFs) up and running.

The company is transitioning from blast furnaces to EAFs. The first arc in one furnace (named furnace No. 2) should be struck before the end of April. “It’s a very exciting time here at the company,” Garcia said. “We’re just days away from striking that first arc.”

A second EAF (furnace No. 1) is scheduled to come online in the fourth quarter. Garcia said the hope is to get 100,000-225,000 tons out of the EAFs this year.

“We have to start these EAFs up as fast as we possibly can, as safely as we can, and shut down our blast furnaces as soon as we can,” he said.

Switching to entirely EAF production will be far cheaper than simultaneously operating both the new EAFs and Algoma’s legacy blast furnace and coke ovens. “That’s going to be in our best interest, no matter what the markets look like,” Garcia said.

But the change won’t happen right away. It will be “incremental.” And “we’re not going to turn down the blast furnace in 2025,” he added.

More risk in trade

Historically, Algoma has shipped about 50%-60% of the flat-rolled steel it made to the United States. Going forward, that will likely change.

“Even without a 25% tariff, assuming that the Canadian market can address some of its weaknesses for domestic steel consumption, I think we’re going to want to sell more steel in in Canada. Maybe we’re going to sell 60%-70% steel in Canada.

For about a 100 years, the border between the US and Canada wasn’t a risk in terms of trade.

But Trump’s unpredictable tariff policies “caused us to really examine how much business we want to do in the US from just a risk standpoint,” Garcia said.

For roughly a century, it just made sense to sell about half Algoma’s output to the US given. The mill is well-positioned to service customers in the States given proximity to border, easy access to the Great Lakes, and mostly friendly trade relations between the US and Canada.

“The last three months have shown that if you get an administration in the US that that views trade differently, they can, at the snap of a finger, put a 25% tariff on it,” Garcia said.

The unpredictability of the tariffs, and understanding a new US president could reverse Trump’s decisions, makes planning a big challenge, he said.

Canada produces about 12 million tons of steel and consumes about 16 million tons of steel. But half of Canada’s production has been exported to the US while steel from overseas has supplied Canada.

“The Canadian government should really think about their steel industry from a national security standpoint, and do things to strengthen the the environment in Canada and the steel industry in Canada, because it is vital to national security,” Garcia said.

Scrap supply

Algoma said it’s positioned well to secure the scrap to feed its EAFs.

“We buy scrap already for our BOF shop,” he said. “We know where the scrap producers are. We know where scrap lies in southern Ontario, in the Midwest of the US. We know how much scrap is leaking from North America overseas.”

“We know that when we enter the market and start buying scrap in a significant way – that kind of 3 million – 3.5 million ton level of buying scrap – we’re confident that it’s going to be available now. It’s still going to have an effect on the market, so the market prices will will go up. But it’s not a unique disadvantage to Algoma.”

Algoma formed a joint venture with Triple M Metal LP called ATM Metals Inc. to source prime scrap and other iron units in 2021.

“We know where the prime scrap is,” Garcia said. “We know that there’s pig iron available. We’re having discussions with future suppliers of pig iron. So that’s part of our metallic strategy as well.”