What happened
Shares of Canadian steelmaker Algoma Steel Group (ASTL 0.06%) plunged today after the company put some numbers onto several previously disclosed operational problems. The stock was down as much as 16.3% and remained down 12% as of 10:05 a.m. ET.
So what
The company provided guidance for its fiscal 2023 second quarter, ended Sept. 30, 2022. Algoma has had several operational issues in recent months, and now it has given investors guidance that adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to be in a range of just 75 million to 80 million Canadian dollars. That compares to CA$358 million in the prior quarter and about CA$431 million in the prior-year period.
Image source: Getty Images.
Now what
Other North American steelmakers, including Nucor, U.S. Steel, and Steel Dynamics have recently warned that results from the current quarter will be negatively impacted from lower steel pricing. Prices for hot rolled steel coils have sunk from nearly $2,000 per ton one year ago to about $800 per ton recently.
But Algoma has had more issues than just lower sale prices. The company lost some production due to a shortage of workers as it negotiated an agreement with its local steelworkers union. It also had start-up delays as it commissioned the modernization of its plate mill. The company now has a ratified agreement for the next five years with the union, and it says the plate mill is operating at 80% capacity.
Algoma also reported a fire on one of its coal conveyors in August that will continue to affect its coke production into early next month. Steel is a cyclical industry and investors should expect periodic volatility with any investment in the sector. Proven operators like Nucor and Steel Dynamics can thrive throughout these cycles. Investors who want to have exposure to the industry would be best served sticking with those two names.
