Steel mill wrestles with 'operational challenges'

Recent technical issues at Essar Steel Algoma Inc. are affecting the company's steel production and shipments, says Brian Denega, the court-appointed monitor who's overseen the Sault steelmaker's restructuring for more than two years.

The problems, which include water getting into the No. 7 blast furnace, are complicating Algoma's ship delivery schedule and its iron pellet supply agreement with U.S. Steel Corp, court records indicate.

The steel mill's recent setbacks began during last summer's rebuild of one of four stoves that provide hot air to No. 7 blast furnace.

Originally planned to take "several months," the work took longer than expected because of what Denega describes as "unforeseen construction delays."

Original estimates called for Algoma's steel production to be reduced by about 78,000 tons, resulting in a revenue decrease of $60 million and a loss in profits of $25 million.

But the rebuild wasn't completed until December, Brenda Stenta, Algoma's manager of corporate relations, tells SooToday.

The blast furnace continued to operate without the troublesome stove, but at reduced levels.

Another iron-making production issue surfaced near the end of November.

"There was an accidental cooling member failure that caused water to get into Algoma's blast furnace," Rajat Marwah, the company's chief financial officer, said in an affidavit sworn on Dec. 18.

"The accident resulted in the blast furnace being shut down for a number of days in November, further reducing Algoma's monthly steel production and increasing the stockpiles of excess raw materials," Marwah said.

"The delayed stove rebuild project, coupled with the production issue described above and certain maintenance work, negatively affected Algoma’s production and shipments in the past several months," Denega reported in his most recent update on the company."

"As a result, Algoma’s ability to take delivery of certain raw materials as originally scheduled has been moderately constrained as described."

"Notwithstanding the above-noted operational challenges, Algoma projects that, subject to receiving the anticipated deliveries between January and March 2018, weather permitting, it will have an adequate store of raw materials to continue operating in the ordinary course during the winter months and into the spring," Denega said.

From Nov. 25 to Dec. 15, Essar Algoma and related companies reported combined net cash outflow of $16 million, $3 million worse than forecast.

Cash on hand was $34 million as of Dec. 15.

United States Steel Corp. launched legal proceedings against Algoma in December related to the shipping delivery problems.

It accused the Sault steelmaker of breach of contract for refusing to take delivery of or pay for 172,000 net tons of iron pellets, worth about US$12 million, until an unspecified time in 2018.

Algoma then indicated it could accept and pay for the pellets by Apr. 30.

In a Dec. 29 decision, Superior Court Justice Glenn Hainey ordered Algoma to pay $12 million to the court-appointed monitor, who will hold it in escrow until the pellets have been delivered this spring.