Government loans give Algoma more breathing room for transition

Government lifelines announced Monday could help Algoma Steel Group Inc. navigate through the effective loss of the U.S. market as it looks to focus on supplying Canadian buyers.

The loans, including $400 million from the federal government and $100 million from Ontario, look to be on favourable terms and should help the Sault Ste. Marie-based steel producer find its footing, said RBC analyst James McGarragle.

“We view the loan announcement as a positive development,” he said in a note.

The funding backstop reduces the chances that Algoma will run out of capital as it works to shift its operations and output to meet domestic demand, said McGarragle.

“This positions Algoma to achieve long-term operational and financial stability.”

U.S. tariffs of 50 per cent on Canadian steel production, ostensibly on national security grounds, has effectively cut off domestic exports, including from Algoma.

The tariffs have led to a significant pullback in steel mills and iron-based manufacturing, with activity down 25 per cent in July compared with February, according to Statistics Canada.

Algoma has been paying some tariffs itself to maintain U.S. customers, but second quarter tariff costs of $64.1 million helped lead to a net loss of $110.6 million for the three-month period. 

The company is working to shift production both to more efficient methods, as well as to gear itself more to the Canadian market, to survive.

Algoma said Monday it would accelerate its transition to a full electric arc furnace operation, which produces less emissions and requires fewer workers than its existing blast furnaces, saying the tariffs make its existing facilities unsustainable. 

It’s also moving away from its coke ovens toward using scrap metal and other outside sources of raw materials, to further reduce emissions and labour demands.

The acceleration means the transition to the new furnaces is expected to cost $987 million, which McGarragle said would add about $70 million to the expected costs but looks to be a “strategically sound move.”

Algoma chief financial officer Rajat Marwah said in a statement that the government loans will give the company enough breathing room to make the transition. 

“This support allows us to move forward with confidence — aligning operations with market realities, advancing the EAF strategy, and safeguarding Algoma’s future,” he said.

The company has already benefited from some $420 million in government support for its transition to electric arc furnaces, as Ottawa looks to reduce emissions from major industries and tries to support a strategically important sector.

Algoma broke ground on the new furnace infrastructure in late 2021 and produced the first steel from it in July. 

The company says that going forward, it plans to focus production on as-rolled and heat-treated plate steel along with select coil products, predominantly for the Canadian market, including key sectors like automotive, construction, energy, defence, and manufacturing. 

The federal government has also moved to increase tariffs on steel imports to help protect the domestic industry, but the Canadian Steel Producers Association says the government isn’t doing enough to keep out American steel products. 

This report by The Canadian Press was first published Sept. 29, 2025.

Companies in this story: (TSX:ASTL)