Steve Johnson, a 36-year employee at Essar Steel Algoma in Sault Ste. Marie, Ont., is more concerned about his pension than the fact the company is in creditor protection for a third time.Kenneth Armstrong/The Globe and Mail
As a 36-year veteran of the steel mill that dominates Sault Ste. Marie, Ont., Steve Johnson didn't lose any sleep Monday night after Essar Steel Algoma Inc. was granted creditor protection.
"If I look at the horizon, it hasn't changed," Mr. Johnson says. "They're still making steel. They're still making iron. We can tell by which smokestack is emitting fumes what's going on."
It is the third time in a quarter century that Algoma has been granted protection under the Companies' Creditors Arrangement Act. The steel maker has interest payments of $25-million (U.S.) that it is unable to make amid a collapse in the price of steel and a court battle with an iron ore supplier.
The Algoma filing is also the latest instalment in an industry crisis that has led to mill shutdowns in North America and Europe, massive financial losses at major steel makers and petitions to governments to slap tariffs on steel from China, the main source of a flood of exports that has contributed to prices for benchmark steel plunging 40 per cent from 2014 levels.
Two of Canada's three integrated steel makers – those that use blast furnaces to make steel as opposed to melting scrap in electric furnaces – are in CCAA protection.
U.S. Steel Canada Inc. filed in September, 2014, but its parent company, United States Steel Corp., effectively kicked the money-losing unit out of the house earlier this fall amid its own battle for survival and protracted negotiations with stakeholders that failed to lead to a restructuring deal.
Evraz North America, which operates facilities in Regina, Calgary and Red Deer, Alta., has 220 workers on layoff at the two Alberta operations amid the oil and gas slump and the flood of imports of pipe from China. Imports of small-diameter line pipe from China more than doubled between 2011 and 2014.
The crises at Algoma and U.S. Steel Canada raise questions about the future of steel making in this country after the five largest Canadian-owned steel makers were swallowed up by foreign companies during a global consolidation in the 2000s.
As in all sectors of Canadian manufacturing, steel making is not the titan it once was. Nonetheless, the most recent data show about 20,000 direct employees who generate exports of about $7-billion (Canadian) annually.
Although those are large numbers, there are other issues to consider as governments assess whether the industry needs financial help – over and above the tariff walls being sought to reduce the flood of imports.
"Our preference – as much as possible – is to buy from domestic mills, absolutely," says Bill Chisholm, president of Samuel Son & Co., a privately held steel service centre that purchases steel from mills and processes it for downstream customers in the auto industry, agriculture, mining, oil and gas, and other sectors.
"If we had to go offshore to replace that, cycle times for ordering to our customers, delivery times, inventories through the supply chain would all increase," Mr. Chisholm says. "By having a domestic industry, we can work with them to develop new steel grades that meet our customers' needs [and] that advance and support manufacturing in Canada."
Samuel buys about 1.1 million tons of steel annually.
That's the equivalent of almost half the annual output of Algoma, which is one of Samuel's suppliers.
"Is the steel industry going like the textile industry? It shouldn't and it's not," says Peter Warrian, a senior research fellow at the University of Toronto's Munk School of Global Affairs. "This is the backbone of manufacturing. What you do with steel [shows] what you think about manufacturing."
Prof. Warrian will get no argument from Mr. Johnson. His unionized job has allowed him to lead a comfortable middle-class lifestyle. The 54-year-old represents the fourth generation of his family to work at Algoma, whose hulking physical presence on the west side of the city also signifies its status as Sault Ste. Marie's economic engine.
Although the job count is down to about 3,000 people from the days before the first restructuring in 1990, when Algoma employed 13,000 people, 54,000 of Sault Ste. Marie's 78,000 inhabitants directly or indirectly depend on the steel maker.
"The day I turned 18 I applied to work there," Mr. Johnson says. "Within a month I was working."
He bought a 1979 Ford Thunderbird and paid it off in nine months. He has bought and paid off two houses. He is now helping his children pay their way through university.
Although he is taking the third CCAA filing in stride, he is worried about his pension. Algoma has pension deficits of more than $500-million. It lost $80.7-million in the three months ended June 30.
U.S. Steel Canada lost $343.8-million in the nine months ended Sept. 30.
Prof. Warrian notes that U.S. Steel Canada's Lake Erie Works in Nanticoke, Ont., and the Algoma direct strip production complex in Sault Ste. Marie are among the most modern and efficient steel-making facilities in North America. Given that both companies are in CCAA protection, a buyer might be able to scoop up both assets for a few hundred million dollars, he said, if such a buyer also made a commitment to invest more money to upgrade Lake Erie and to solve some of Algoma's financial woes.
Getting the two mills up to globally competitive standards could take an amount topping $1-billion, said one former senior steel industry executive, who noted that one of the global leaders at the opposite end of the solvency spectrum from Algoma and U.S. Steel Canada is a Canadian mill, ArcelorMittal Dofasco.
Dofasco has been affected by the slump in prices – notably in steel it produces for the energy sector – but is running close to capacity, president Sean Donnelly says.
Mr. Donnelly is worried, however, that the price slump will soon hit the market for automotive steel, which is a key market for Dofasco.
The steel maker maintains a series of strategies to try to stay healthy through the kinds of storms now pummelling the industry, he says.
Among those are instilling a culture of continuous improvement and investing in new technology and upgrades to existing operations.
"This year and next we're starting up new investments in the range of $200-million that are coming on line as we speak," he says. "These will again position us as high-quality suppliers; low-cost suppliers."