No. 6 blast furnace could be fired up to make pig iron if Algoma can’t find enough material to feed its electric arc furnaces
On Jan. 18 of this year, Algoma Steel announced it had permanently shut down its No. 7 blast furnace and its associated coke batteries.
That, we were told, was the end of coal-based integrated steelmaking in Sault Ste. Marie.
Going forward, Algoma would now make steel in electric arc furnaces (EAFs).
The federal and provincial governments had provided a total of $500 million in financing on the understanding that the transition would cut carbon emissions by about 70 per cent.
But not so fast.
The days of smoke-belching blast furnaces in Sault Ste. Marie may not be over.
Speaking to investors during a conference call this week, Rajat Marwah, Algoma’s chief executive officer, mentioned the possible reactivation of a 73-year-old blast furnace.
The company’s No. 6 blast furnace was commissioned in 1953, replacing the aging No. 3 and 4 furnaces.
It was superceded in 1975 by No. 7 furnace, which at the time was the largest blast furnace in the British Commonwealth.
No. 6 has been left in place for use in case backup was ever needed.
Idle for more than a decade around the turn of the millennium, the smaller furnace was briefly restarted in 2008 after a $40-million rebuild.
The plan in 2008 was to expand Algoma’s capacity to four million saleable tons, but it was idled once again as an economic downturn affected demand for steel.
There was also talk of firing up No. 6 in 2014.
During this week’s presentation to investors, Marwah mentioned No. 6 blast furnace as part of a contingency plan if Algoma has trouble finding enough material to feed its EAFs.
In addition to scrap metal, ore-based metallics including direct reduced iron (DRI), hot briquetted iron (HBI) and pig iron may also be fed into EAFs.
These materials are valued for their ability to shape the chemical specification of steel at low cost.
Katja Jancic, a stock analyst with BMO Capital Markets, asked the Algoma CEO about the scrap metal market: where Algoma is buying it and at what price.
“The scrap is coming from Canada and some from U.S., but mostly from Canada,” Marwah said.
“There is enough scrap available from a sourcing perspective as we are ramping up.
“Pricing is a different dynamic right now. Price of scrap is still following the North American selling price. And it’s not being adjusted by any other dynamics between Canada and the U.S.
“As we have seen, the pricing of sheet has been affected between Canada and U.S. due to the oversupply of sheet in Canada and the Section 232 tariffs. Scrap is still moving at the price, which is the index price, linked to the North American CRU index (the most widely used benchmark for steel prices in the United States),” Marwah said.
Ian Gillies, managing director for equity research at Stifel Canada, then got Marwah to acknowledge that No. 6 blast furnace is being maintained as a backup for EAF feedstock.
“Are there any workarounds or potential workarounds in Canada through additional procurements of DRI or pig iron that might provide a cost advantage, or is that just completely unlikely?” Gillies asked.
“Till the time the market is open on both sides of the border, I think it’ll be the way it used to be for selling price, where you have opportunities on the other end to supply that product,” Marwah said.
“Normally, DRI or HBI, they do carry a premium. And depending upon demand supply, the price will be established. There’s no quick solution from that perspective.
“The solution that we do have, if let’s say this becomes a long-term structure in the market, we have No. 6 blast furnace that can produce pig, depending upon how the market price fares out. That’s a mitigation that we have.
“Otherwise, from a market perspective, we see the market to be porous between U.S. and Canada, and the pricing will remain the way it is,” Marwah said.
On another issue, Michael Moraco, Algoma’s chief financial officer, mentioned that the company is at the centre of some legal battles.
“We have initiated and are responding to legal proceedings in connection with certain supply agreements, taking the position that these agreements have been frustrated by the extraordinary and unforeseen tariff environment,” Moraca said.
“We believe we have valid legal remedies and defences and will continue to defend our position. We are not in a position to comment further on this at this time.”
Marwah then described how he hopes to get Algoma Steel back in the black.
“The path back to profitability runs through scale, more EAF production, more plate tonnes, and a cost structure that improves with every additional heat we cast,” he said.
“We are not there yet, but the trajectory is the right one and we have the liquidity to execute.”
