Algoma Steel can’t commit to plate mill commissioning date

Algoma Steel's timeline for commissioning its way-behind-schedule plate mill upgrade must remain "flexible," says Michael Garcia, the steelmaker's chief executive officer.

"We believe most plate mill issues are behind us and we are working towards achieving full operating capability," the company said in a management discussion report released last week.

The report stated the two-phase project "is currently expected to be completed in mid-2023."

But under questioning from analysts during an earnings call, company officials seemed far less decisive about committing to mid-2023 as a hard deadline.

As SooToday first reported in late August, the plate mill modernization project is many months behind schedule because of automation glitches.

Initially listed on the company's books as a $120-million capital expenditure, the upgrade's price tag has now climbed to $135 million as a result of the delays, on top of an estimated $65-million drag on Algoma's bottom line, about 30 per cent of which will bleed into the next quarter.

The first phase of the project, focused on quality, was originally scheduled for completion by October, 2021. It consists of the following upgrades:

• new primary de-scaler (improves surface quality)
• automated surface inspector system (detects and maps quality)
• new hot leveler (improves flatness)
• automation upgrade of the 166 mill (expands grade offering)

The focus of the second phase is productivity, with an original completion date of October, 2022:

• onboard descaling system upgrade for 2Hi and 4Hi
• mill alignment and work roll offset at the 4Hi
• 4Hi DC drive upgrade
• in-line plate cutting including new cooling beds coupling the plate mill and shear line, dividing shear and new plate piler

The following are from remarks made by CEO Garcia during last week's earnings call:

During the quarter we continued the commissioning of Phase I of our plate mill modernization project, working through automation upgrades that will improve the quality and capability of Canada's only discrete plate mill.

These automation challenges continue as we are outfitting our legacy plate mill with modern next-generation process controls.

Mechanically, all upgrades are complete and the remaining work is centred on the [information technology] side related to automation.

During the quarter, both our technical and business leaders visited the vendor's facilities in Europe and met with their senior executive team here in Sault Ste. Marie to advance the plans for completing the commissioning and applying our learnings to Phase II of the project.

These efforts will continue in the calendar fourth quarter and we believe the plate mill will remain around 80 per cent utilization range until completion in early 2023.

The second phase of the plate mill modernization project is currently scheduled to begin in the middle of next calendar year.

We will be mindful of market conditions and other operational factors when we make the final decision to commence.

Garcia was then asked how committed Algoma is to the middle-of-next-year completion date, whether the company timeline might be "soft."

Here's his reply:

I don't know if soft is the right word, but it's flexible depending on our absolute certainty that we understand all of the issues that we dealt with in the first phase of the plate mill modernization and we understand everything that needs to happen beforehand that can greatly mitigate the chances of those type of challenges being met.

While we're live and we're waiting, you know, and we need to run steel through through the plate mill.

So, you know, there's going to be a point and it's already started, but it can't really be complete until everybody that is involved in this and there's certainly people still involved on the actual commissioning.

We need to make sure that we've done a thorough after-action review, if you will understand all of the issues and the root causes and how we can take steps to mitigate to the greatest extent possible, all of that offline before we shut down for Phase II and make sure we have an oversight function to confirm and ensure that everything we're talking about doing offline is actually happening to the level of detail that needs to happen.

Only then will I be convinced and I'll be able to convince my board that we are ready to proceed with Phase II.

The plan now is that we can get all that done and all that level of preparation in order to proceed with Phase II at mid year.

But if for any reason, we don't reach that level of comfort and confidence, then then we will not go down as planned until we're ready

Rajat Marwah, Algoma's chief financial officer, was asked when he expected the plate mill's production volume could be restored.

Here's how Marwah responded:

We should be at historical levels, in any case, on fiscal '24.

The big question still is on our second phase and when we get it done. Currently it's slated for middle of next year. And as we have said that we will be very cautious and careful about moving on the second phase.

The most of the work will be done but pulling the trigger and getting all the integration done, and automation completed will be very carefully studied and done so we don't want to lose beyond what is what is normal downtime in that mill.

So that's a big wildcard. If let's say that gets completed in the middle of next year, then it should be, let's say, in the June/July period. Then it will take at least five more months to start ramping up for high volume because that upgrade will double the volume that we have currently but reaching that full percentage will take a little bit longer.

Algoma Steel's plate mill is the only Canadian maker of discrete plate steel – a product used to make Royal Canadian Navy warships (HMCS Toronto and HMCS Halifax) as well as bridges (Champlain Bridge, Bluewater Bridge), buildings (Pearson International Airport, Rogers Centre, GFL Memorial Gardens) and wind turbines across Ontario.

The plate mill upgrade is being done by the Buttrio, Italy-based Danieli Group, which designed and delivered Algoma's flagship direct strip production complex in the mid-1990s.

Danieli is also the sole technology supplier for Algoma's $700-million transition to electric arc furnace (EAF) steelmaking, the most expensive construction project in local history.

That transformation will replace Algoma's existing No. 7 blast furnace and slash the company's carbon emissions by approximately 70 per cent.

Given the current economic uncertainty, CEO Garcia said Algoma remains primarily focussed on "prudent financial discipline, returning to full operating capability and execution of our EAF project ushering in the next era for our company that provides the foundation for the long term."