Why Did Algoma Steel Plunge 11.57%? Tariffs, Downgrade, Losses

Algoma Steel Group's stock price plummeted by 11.57% during pre-market trading on June 2, 2025, reflecting significant market volatility and investor concerns.

BMO Capital downgraded Algoma Steel from 'Outperform' to 'Market Perform,' citing the impact of increased U.S. tariffs on the company's performance. The price target was reduced to C$8 from C$12, highlighting the challenges posed by the 50% increase in Section 232 steel tariffs. This escalation is expected to negatively affect Algoma's short-term prospects due to its substantial exposure to the U.S. market.

In its recent business developments, Algoma Steel reported an adjusted EBITDA loss of $46.7 million, with a 9% margin. The company generated $92.1 million in cash from operating activities and maintained a strong balance sheet with $226 million in cash and total liquidity of $587 million. Shipments increased by 4.2% to 470,000 tons, but net sales realization dropped to $986 per ton from $1260 per ton in the prior year period. Steel revenue decreased by 18.5% to $463 million, and the cost per ton of steel products sold rose by 4% to $1,137. Tariff costs amounted to $10.5 million, included in the cost of sales due to a 25% tariff on outbound steel shipments to the U.S. The company reported a net loss of $24.5 million compared to a net income of $28 million in the prior year quarter.

Despite these challenges, Algoma Steel has several positive developments. The company is advancing its Electric Arc Furnace (EAF) project, with first steel production expected in the second quarter of 2025. Plate shipments increased to approximately 91,000 tons, and the company is participating in the Canadian defense supply chain, which is expected to support future demand for its plate products. Additionally, Algoma Steel successfully reduced inventory levels by $138 million compared to the prior quarter, enhancing working capital efficiency.

However, the company faced challenging market conditions with lower realized pricing and higher production costs due to tariff uncertainty and Canadian trade policy. The harsh winter conditions also led to higher utility costs, impacting the company's cost structure. These factors contributed to the adjusted EBITDA loss and the decrease in net sales realization.