ASTL — Q2 2026 Financial Report Analysis

Smaller, pricier, still losing money: Algoma's first full quarters as a plate-only electric-furnace mill

Algoma Steel's revenue fell 54.6% to C$267.5 million in the quarter to June 30, 2026, and it lost C$96.0 million (C$0.88 per share). This was the second full quarter since the company shut its coal-fired blast furnace on January 18, 2026. All its steel now comes from one electric arc furnace (EAF), which melts scrap with electricity. The blast furnace closed because the 50% U.S. Section 232 tariff on Canadian steel cut Algoma off from the U.S. buyers that used to take roughly half of what it shipped. Shipments fell 61.6% to 181,473 tons. Each ton sold for 20.2% more, because the mix moved toward plate (thick, flat steel used in bridges, buildings, ships and armoured vehicles), which Algoma says only it makes in Canada. The loss was smaller than a year ago, but not because the business improved. A one-time C$45.0 million insurance payout and a currency gain did that work. All figures are in Canadian dollars (C$). Algoma reports under IFRS in CAD, even though its shares trade on NASDAQ.

At a glance

• C$13.8 million adjusted EBITDA, inside the C$5–15 million guidance. That figure includes the C$45.0 million insurance settlement. Without it, the result would have been a loss of about C$31 million. Adjusted EBITDA is management's measure of earnings before interest, tax, depreciation and items it treats as unusual.
• Plate shipments: 125,000 tons, up 21% on a year ago. Second straight record quarter. Sheet steel (coil) shipments fell 85%, from 369,000 to 57,000 tons, because the company is deliberately walking away from the coil market.
• Operating cash outflow of C$79.4 million, plus C$29.0 million of capital spending. That is roughly C$108 million of cash burned in the quarter, covered by C$127.6 million of government loans received. Liquidity at quarter-end: about C$437 million.

The numbers

Net sales realization (NSR) is the average price per ton after taking out freight and non-steel revenue. Operating margin is the loss from operations as a share of revenue. Plate and sheet tonnages are rounded to thousands in the company's quarterly table.

What moved, and why

Volume collapsed, by design. Algoma says shipments fell "due to weakening market conditions, particularly due to the S232 Tariffs which impacted the Company's export sales and resulted in over-supply of the Canadian market at reduced transactional pricing." Coil is the common product that every North American mill makes. Canadian coil prices have been pushed down by mills that lost their U.S. customers, by U.S. steel coming north, and by cheap imports. Algoma's answer is to stop chasing coil and concentrate on plate, where it has the Canadian market almost to itself. Plate went from 22% of tons a year ago to 69% this quarter.

Price per ton rose, but cost per ton rose faster. NSR was up 20.2% to C$1,361, "primarily due to increased plate shipment volume both in aggregate and as a percentage of sales." Cost per ton was up 23.3% to C$1,411, "primarily due to worse fixed cost absorption due to lower steel production volumes." A steel mill carries large fixed costs: staff, maintenance and the site itself. Spread over a third of last year's tonnage, each ton carries a much bigger share of them. Algoma sold each ton for about C$50 less than it cost to make, even on the company's own cost-per-ton measure, which already leaves out depreciation and idle-plant costs. A year ago it roughly broke even per ton. This is the central problem the second furnace is meant to solve.

The tariff bill shrank only because U.S. sales shrank. Direct tariff costs fell to C$18.7 million from C$64.1 million. The 50% rate did not change. Algoma simply sent less steel across the border: 23% of shipments, against a historical 45–55%.

Sequentially, things are inching forward. Compared with Q1 2026, revenue fell 10% (C$296.9 million to C$267.5 million). Plate rose from 116,000 to 125,000 tons and sheet fell from 108,000 to 57,000. The net loss narrowed from C$159.4 million to C$96.0 million. The "capacity utilization" charge also came down, from C$90.2 million to C$54.7 million. That charge is the cost of idle legacy plant and staff that the single furnace can't yet keep busy, and the company adds it back to get adjusted EBITDA.

What the headline numbers hide

• The smaller net loss comes from two items outside steelmaking. Other income of C$47.8 million (C$45.0 million of it the final insurance settlement for the January 2024 utility-corridor collapse) and a C$18.8 million foreign-exchange gain, against a C$31.5 million FX loss a year ago, together swung pre-tax results by about C$98 million. Strip out other income and FX in both years and the pre-tax loss was roughly C$161 million, against about C$116 million in Q2 2025. That is worse, not better. The operating loss, which excludes both items, widened by C$49.1 million.
• Adjusted EBITDA leans heavily on add-backs. The C$13.8 million positive figure includes the C$45.0 million insurance gain. It also excludes C$54.7 million of capacity-utilization costs, C$11.2 million of "legal settlements and legacy contracts" and C$7.5 million of carbon tax. Take out the insurance alone and adjusted EBITDA is about –C$31 million. Take out the insurance and put back the capacity-utilization costs as well, and it is about –C$86 million. The capacity-utilization add-back is real money paid in cash today. Management's argument is that the cost goes away by Q4, so whether excluding it is fair depends on that promise holding (see below).
• The insurance money appears to be booked but not yet collected. The cash-flow statement shows no insurance proceeds received in Q2. Meanwhile "other accounts receivable" jumped from C$6.7 million at December 31 to C$50.2 million at June 30, about the size of the settlement. That points to the C$45.0 million arriving in cash in a later quarter. Trade receivables, the money customers owe, actually fell from C$172.4 million to C$148.6 million, so there's no sign of loosened credit terms to prop up sales.
• Cash conversion is poor, and inventory release is flattering it. Operating cash flow (–C$79.4 million) was a bit better than the net loss (–C$96.0 million), but only because C$26.2 million came in from working capital. Most of that is the company selling down stock: inventory has fallen from C$569.3 million at year-end to C$449.0 million, partly legacy blast-furnace material being run off. That is a one-time source of cash and can't be repeated.
• No tax cushion this time. A year ago Algoma booked a C$36.9 million tax recovery against its loss. This quarter it recorded a C$2.0 million tax expense, despite a C$94.0 million pre-tax loss. So the loss passes straight through to net income, and that makes the year-on-year net-loss improvement look smaller than the pre-tax improvement.
• The balance sheet is being propped up with government debt. Long-term government loans rose from C$192.3 million to C$348.3 million in six months, and the company received C$255.1 million of government loan advances in H1. Most of it came from the C$500 million federal/Ontario Large Enterprise Tariff Loan (LETL), of which C$168.0 million remains undrawn. Shareholders' equity fell from C$491.1 million to C$295.6 million over the same period. The LETL also carries warrants at C$11.08 per share that vest as Algoma draws on the unsecured portion, so heavier borrowing also means more potential dilution later. Algoma paid no dividend this quarter and is restricted from paying one while the LETL is outstanding.
• EPS didn't benefit from buybacks. The share count rose slightly, to 105.7 million at June 30, from stock-based compensation and earnout exercises. The narrower per-share loss is the same insurance-and-FX story as the net loss.

Takeaway: Plate pricing works: Algoma gets about 20% more per ton than a year ago. But the mill now makes too little steel to cover its fixed costs. Without the one-time insurance payout, the quarter lost money even on management's own adjusted measure. The investment case now rests on two things: the second electric furnace running and C$50+ million a quarter of idle-plant costs disappearing. Until that happens, government loans pay for the cash burn.

Did management's own guidance hold up?

We haven't published an earlier Algoma report, so the check here is against the company's own pre-announcement. On June 30, 2026 Algoma guided to 175,000–180,000 tons of shipments and C$5–15 million of adjusted EBITDA, including the C$45 million insurance benefit and a C$50–55 million capacity-utilization add-back. It delivered 181,473 tons and C$13.8 million, with a C$54.7 million add-back. That was at or slightly above the top of guidance on volume and inside the range on EBITDA.

Two promises from this quarter's release have already slipped:

• Second furnace timing. On July 29 the company said first steel from EAF Unit Two was "expected in the third quarter of 2026." Its October 1 update said all electrical equipment on Unit Two had been tested and "we expect first heat in the coming days," with production and shipments from Unit Two in the fourth quarter. First steel has slipped from Q3 into early Q4.
• Capacity-utilization costs. These were "expected to decline further over the next three months" from C$54.7 million. Q3 guidance assumes a capacity-utilization adjustment of about C$50–55 million, essentially flat. The likely reason is that the furnace lost production during the August power outage, so fixed costs were again spread over fewer tons.

Outlook

What management has said since the quarter closed. On August 17, 2026 one turbine at Algoma's Lake Superior Power plant, which supplies the steelworks' electricity, failed and the EAF was shut down. Under interim power arrangements with Ontario's grid operator, the furnace restarted on August 29. On October 1 Algoma said a replacement turbine was installed and the plant was back at full power. Its Q3 guidance is:

The CFO said Q3 also had "a less favourable sales mix," so the per-ton price gain from plate may partly reverse for one quarter. There is no insurance payout in Q3 to lift the number. This quarter's management also maintained that capacity-utilization costs will be "fully eliminated by the fourth quarter of 2026."

Our read. Q3 will be weaker than Q2 on every line: about 20% fewer tons, adjusted EBITDA back in the red, and no one-off gain. Even on the guided adjusted basis, which still excludes C$50–55 million of idle-plant costs, Algoma expects to lose money. The real test is Q4. If Unit Two produces commercially and the C$50+ million a quarter of capacity-utilization cost actually falls to zero, the cost-per-ton problem described above starts to close. Algoma says the finished site will be able to make about 3.7 million tons of raw steel a year, against an annualized run rate of well under 1 million tons shipped today. If either the second furnace or the cost removal slips again, Algoma will keep drawing on the C$168 million of LETL capacity left. At this quarter's burn of about C$108 million, that is not a long runway, even with C$437 million of total liquidity and the insurance receivable to collect. The things to watch in the Q3 release (last year's Q3 results came out on October 29): first-heat confirmation for Unit Two, the plate share of shipments, cost per ton, and whether management restates the Q4 timetable for eliminating capacity-utilization costs.

Two items on the demand side are mixed. Algoma formed a defence-steel joint venture with armoured-vehicle maker Roshel in April. But its January agreement with Hanwha Ocean has been suspended after Canada picked Thyssenkrupp Marine Systems, not Hanwha, for its submarine programme on July 6. That agreement depended on Hanwha winning the contract, so one potential large plate customer has dropped away.