When it comes to long-term investing, I’m usually more interested in how a company responds to a crisis than in the crisis itself. Algoma Steel Group (TSX: ASTL) is apparently being forced to make one of those responses right now. U.S. steel tariffs have effectively shut the company out of much of its traditional American market, pushing Algoma to focus more aggressively on Canada. Now, Canada is fighting back with tariffs of up to 50% on certain U.S. steel and aluminum products. That combination could strengthen demand for Canadian-made steel just as Algoma expands its domestic plate strategy and completes its new electric arc furnace platform.
In this article, I’ll explain why Canada’s tariff retaliation and Algoma Steel’s domestic pivot and other fundamentals could make ASTL one of the most interesting trade-war stocks to watch on the TSX today.
Source: Getty Images
Why Algoma Steel looks interesting now
If you don’t know it already, Algoma produces steel sheet and plate for industries such as construction, energy, defence, automotive, and manufacturing. More importantly, Algoma is Canada’s only producer of discrete plate, giving it a unique position as trade barriers reshape the Canadian steel market.
At the time of writing, ASTL stock was hovering close to $6.50 per share with a market cap of $689 million. Its shares have climbed 15% year to date and about 12% so far this month.
Interestingly, Canada is raising counter-tariffs on certain U.S. steel and aluminum products from 25% to 50%. The measures took effect September 8 and are part of $27.6 billion in Canadian countermeasures against U.S. tariffs. For Algoma, this scenario could create exactly the kind of domestic market opportunity it needs. By making affected U.S. steel imports significantly more expensive, Canada’s retaliation could encourage Canadian buyers to source more steel at home.
A difficult transition is starting to improve
In recent quarters, Algoma Steel has been aggressively rebuilding its business around the Canadian market. In the second quarter, Algoma’s revenue fell about 55% year-over-year (YoY) to $268 million. Steel shipments dropped nearly 62% YoY to roughly 181,500 tons. It attributed the weakness mainly to its electric arc furnace transition and the disruption of its historical U.S. export business.
Nevertheless, the company generated adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $13.8 million for the quarter, improving massively from an adjusted EBITDA loss of $32.4 million a year ago. Its average net steel sales realization also climbed about 20% YoY to $1,361 per ton, helped by an improved product mix under its plate-first strategy.
With this, Algoma delivered its second consecutive quarter of record plate sales. In addition, its direct tariff costs fell sharply to $18.7 million from $64.1 million a year ago as the steelmaker deliberately reduced U.S.-bound shipments.
Why the retaliation angle could get stronger
The steelmaker’s first electric arc furnace is already operating around the clock, while first steel production from its second unit is expected in the third quarter. Once the transformation is complete, Algoma expects annual raw steel production capacity of roughly 3.7 million tons.
At the same time, the company is putting more emphasis on Canadian plate demand from infrastructure, construction, and defence customers. Its Roshel Algoma Defence Solutions joint venture also plans to develop domestic ballistic steel and related manufacturing capabilities.
Although ASTL stock remains risky amid ongoing trade uncertainty, Canada’s higher tariffs on U.S. steel could strengthen the domestic shift Algoma has already started.
If Canadian buyers increasingly turn toward domestically produced steel while Algoma completes its electric arc furnace ramp-up, this painful Canada-U.S. trade disruption could eventually create an attractive long-term growth opportunity for patient investors.
