Algoma Steel’s facility in Sault Ste. Marie, Ont., in April. The company is asking Ottawa for half a billion dollars in tariff relief.Sean Kilpatrick/The Canadian Press
Algoma Steel Group Inc. ASTL-T chief executive Michael Garcia says the Canadian steel maker is in discussions with Ottawa to try to secure a financing package worth more than half a billion dollars as financial pressures mount during a trade war with the United States.
U.S. President Donald Trump in March imposed 25-per-cent tariffs on global imports of steel into the U.S. He doubled the tariff to 50 per cent last month, which essentially closed the American market entirely to Canadian steel makers.
Prime Minister Mark Carney has said that a tariff-free trade deal between Canada and the U.S. isn’t realistic, and signalled that the timing of any pact is up in the air.
Algoma Steel, based in Sault Ste. Marie, Ont., has outsized exposure to the tariffs, owing to its single Ontario plant relying heavily on the U.S. market. Before the trade war began, Algoma sold roughly 60 per cent of its output to the U.S.
Mr. Garcia in an interview on Wednesday said the company is in talks with the federal government and hopes to secure between $400-million and $600-million in loans to help keep it afloat over the medium term. The package could also eventually see the government purchase an equity stake in Algoma.
Ottawa recently changed the rules, allowing it to hold equity in companies under the Canada Enterprise Emergency Funding Corporation (CDEV). The Crown corporation was set up in 2020 to fund companies reeling from the COVID-19 pandemic. It was directed in March to do the same for those affected by the trade war under the Large Enterprise Tariff Loan (LETL) facility.
Prime Minister Mark Carney played down the importance of a looming Aug. 1 deadline in trade talks with the U.S. on Tuesday, saying the objective is to get the best possible deal for Canadians.
The Canadian Press
John Fragos, press secretary for Finance Minister François-Philippe Champagne, did not directly answer a question from The Globe and Mail about the discussions with Algoma, but instead pointed to the $10-billion LETL program as the key tool the government is using to help the steel industry during the current crisis.
“This work is ongoing,” Mr. Fragos said in an e-mail. “We are in constant discussion with the steel industry, through private meetings and biweekly meetings with the newly created Steel Task Forces.”
For Algoma, securing what it considers a fair financing package with Ottawa has been difficult. Mr. Garcia said that the initial loan terms the government provided to the company were onerous, and presented on a “take it or leave it” basis.
“It was frankly, pretty unappealing,” Mr. Garcia said.
“A very high interest rate, high fees, it had mechanisms for granting the government warrants, which would be calculated based on a stock price that has been greatly hit by the tariffs. And so it would be pretty dilutive to the shareholders of Algoma.”
Mr. Garcia is pushing the government to lend to Algoma on far better terms, and recognize that the company’s long-term survival is in the country’s public interest, owing to its strategic importance to the Canadian economy.
Algoma is Canada’s last remaining independent primary steel maker. The other two steel makers that have sizable operations in Canada, ArcelorMittal Dofasco and Stelco, are both owned by foreign giants. Algoma is also the only Canadian manufacturer of steel plate used in the defence sector. It is transitioning to be a low-carbon emitter, and aiming to be the lowest-cost operator in Canada by the end of 2026. The company employs 2,800 in Sault Ste Marie, and 60 per cent of the work force makes a yearly income of more than $100,000.
“Our message to the government is Canada needs Algoma Steel,” Mr. Garcia said.
Algoma Steel CEO Michael Garcia at the company’s Sault Ste. Marie plant in March.Fred Lum/The Globe and Mail
Ottawa in the past has provided funding to the company at extremely favourable terms, and Mr. Garcia is pushing for a similar financing package now.
The government loaned the company $200-million to build its new electric arc furnace. The loan is forgivable, if Algoma meets certain emissions standards over time. In addition, the government provided the company with a $130-million loan to modernize its plate mill, also at favourable terms.
With no end to the trade war in sight, Algoma is adjusting to the U.S. market being closed for the foreseeable future. The company is trying to sell more of its output in its home market. But replacing its U.S. revenue with Canadian customers will take a long time, if the company can get there at all.
“The challenge is that it needs to happen quickly, because we don’t have the luxury of seeing things move at a moderate pace,” Mr. Garcia said.
“If the 50-per-cent tariffs extend any length of time beyond August 1, Algoma is going to be under pretty significant pressure.”
Mr. Carney had earlier targeted an Aug. 1 deadline to reach a trade deal with Mr. Trump but that timeline is now in doubt.
The federal government has already gone to considerable lengths to help the steel industry. Last week, Ottawa announced a further crackdown on cheap steel imports, which is aimed at making domestic steel mills more competitive against their foreign competition.
International mills that don’t have free trade agreements with Canada, including those from China and Turkey, will face Canadian tariffs of 50 per cent if they ship above a certain level. And even countries with FTAs with Canada are now facing import quotas and possible tariffs.
But Algoma Steel and others in the industry say those measures don’t go far enough to address widespread dumping of the metal into Canada. Dumping is selling below the market price to edge out the competition.