Metallus: A Labor Deal, But Is the Business Actually Getting Stronger?

The standoff is over. After two previous votes failed, Metallus and USW Local 1123 have reached a new tentative four-year contract. The deal, which covers about 1,200 bargaining employees at the company's Canton, Ohio operations, ends a disruptive period for the plant. CEO Mike Williams called it a "fair and reasonable resolution" that balances worker needs with company priorities.

To allow time for a ratification vote, the current contract has been extended until February 12, 2026. Operations will continue as normal during this period. The union will schedule the vote, but details of the agreement's terms remain under wraps.

For now, the immediate crisis is averted. But for investors, the real question isn't about labor peace-it's about whether the underlying business is getting stronger. A stable plant is a good start, but it doesn't change the fundamental need to see improving financial health.

The Financial Reality: Thin Profits and Heavy Spending

The labor peace is a relief, but it doesn't fix the core problem: Metallus's business is generating almost no real profit. The numbers tell a clear story. For the entire year of 2024, the company reported net income of just $1.3 million on $1.1 billion in sales. That's a profit margin thinner than a sheet of aluminum. Even the adjusted earnings, which strip out some non-cash items, show a significant drop from the prior year, falling to $25.1 million from $89.8 million.

The adjusted EBITDA figure of $77.7 million for the full year is a key clue. It's much higher than the net income, which means a lot of the reported losses are due to non-cash charges like depreciation and one-time costs. In other words, the company's cash-generating engine is under heavy strain. This is the "smell test" for investors: a business that can't turn sales into profit, even after adjusting for accounting rules, is facing serious operational headwinds.

To make matters worse, Metallus spent heavily last year. It invested $64.3 million in capital expenditures-likely on the plant upgrades and safety systems CEO Williams mentioned. At the same time, it repurchased $54.8 million in common shares and convertible notes. That's a total of over $119 million in outlays, all while its core business barely broke even. This heavy spending, combined with thin profits, is what makes the company's $458.6 million in total liquidity a critical buffer. It's not a war chest for growth; it's a financial life raft for a business that needs to improve its fundamentals before it can afford to be generous to shareholders.

The bottom line is that Metallus is burning cash to stay afloat. The new labor deal removes one source of instability, but it doesn't change the fact that the company's financial engine is sputtering. Until sales and margins improve, this cycle of heavy investment and share buybacks will continue to pressure its liquidity.

The Industry Headwind: A Tough Global Steel Market

Metallus isn't facing these challenges alone. The company is a small part of a much larger, struggling industry. The global steel market is under severe strain, and that's the environment where Metallus must operate. According to the OECD's latest outlook, the industry faces persistent challenges that are likely to intensify through 2025 and beyond. The core problem is a massive supply glut. Substantial new capacity is being built worldwide, with up to 165 million metric tonnes of new steelmaking capacity planned from 2025 to 2027. If realized, this will deepen global excess capacity, which directly pressures prices and profitability for everyone.

Demand is not keeping pace. While some regions like ASEAN and MENA show growth, demand is declining in China and holding flat in OECD economies. This creates a mismatch where supply is expanding but the market isn't growing fast enough to absorb it. The result is a race to the bottom on prices, making it harder for any steelmaker to command a premium.

Compounding the problem is a distorted playing field. Competition is being skewed by heavy government subsidies, particularly from producers in China. The OECD notes that China's subsidisation rate is ten times that of OECD countries. This support encourages overcapacity and unviable investments, flooding the global market with steel. In 2024, Chinese exports hit a record 118 million tonnes, triggering a sharp rise in trade actions like antidumping probes around the world.

For a specialty metal maker like Metallus, this environment is brutal. It's not just about competing on price with commodity steel; it's about competing against subsidized steel that can be sold below cost. This makes it nearly impossible to maintain healthy margins, no matter how efficiently the Canton plant runs. The thin profits reported by Metallus are not an isolated failure-they are a symptom of a broken global market. Until this industry-wide pressure eases, Metallus's financial struggles will persist, regardless of internal labor peace.

What to Watch: The Common-Sense Investor's Checklist

The new labor deal is a step forward, but it's just the starting point. For a common-sense investor, the real story will be told by a few clear, boots-on-the-ground indicators in the months ahead.

First and foremost, watch for the union's ratification vote. The tentative agreement is not final. The union will schedule the vote, and a "no" outcome would immediately reignite uncertainty and the very operational risk the deal was meant to resolve. A "yes" vote is the necessary next step, but it's only the beginning of the proof.

Then, the numbers will speak. The company's full-year 2025 earnings report will be the first major test of whether Metallus can grow sales and profits in that tough global market. The CEO noted stronger customer order patterns in early 2025, but that needs to translate into higher shipments and better margins. Investors should look for a clear improvement in the adjusted EBITDA figure, which showed a steep drop last year.

Finally, monitor how the company allocates its cash. Metallus has a $458.6 million total liquidity buffer, which is critical. The question is whether future spending will be smart investment in growth or simply more of the heavy capital expenditure and share buybacks that strained its finances in 2024. Continued aggressive capital allocation could quickly erode that safety net, especially if sales don't ramp up.

The bottom line is that the labor peace removes a known risk, but it doesn't create a new business. The real test is whether Metallus can improve its fundamentals. Keep an eye on the vote, the next earnings, and the cash flow. If those show progress, the stock may have a path. If they don't, the underlying challenges remain.