Capital spending undertaken by Stelco Inc. since its emergence from creditor protection earlier this year should start to bear fruit in the current quarter, chief executive officer Alan Kestenbaum says.
Stelco shares began trading earlier this month at $17 after an initial public offering that raised $230-million which will be spent upgrading various parts of the company's operations in Hamilton and Nanticoke, Ont.
Spending at the Lake Erie works in Nanticoke has increased output of liquid steel from the blast furnace and increased capacity utilization from a hot strip mill at that location, Mr. Kestenbaum said.
"What that does is it lowers your costs and raises your revenue, increasing profitability," he said in a telephone interview.
Financial results for the first quarter of operation since Stelco emerged from its second trip in 15 years through bankruptcy protection will be released in the next few weeks.
The goal of the capital expenditure program is to make full use of underused assets such as the Lake Erie hot mill and the Z-line galvanizing mill and other mills in Hamilton as Stelco seeks to win back automotive and other contract-based customers, reducing its reliance on the volatile spot market for steel.
"The other thing that's happening is we're migrating into more advanced steels – higher-value-added steels – and that by its nature also results in more contract business," Mr. Kestenbaum said.
Auto makers and other customers want a diversified steel supplier base, he said. Stelco plans to increase its automotive business by producing more advanced high-strength steels and ultra-high-strength steels, production that is made possible by the capital spending program.
Stelco also plans to spend $10-million upgrading the dock that extends into Lake Erie from its Nanticoke operations.
"This is a company that typically shipped its product by rail and by road, but it's far cheaper to ship by water," Mr. Kestenbaum said, "Access to water reduces costs and also gives us exposure to markets all over the world that have not been reached before."
That upgrade is also central to the company's plan to increase output from its Nanticoke hot strip mill because it will enable Stelco to bring in steel slabs from elsewhere to increase output at that mill to full capacity.
The blast furnace can produce 2.5 million tonnes of steel annually, but the hot strip mill has the capacity to process 3.7 million tonnes.
"Our dock has the capacity to process two vessels per day during the shipping season and, with modest investment, will provide us with the ability to cost-effectively receive third-party slab and ship hot-rolled coil to U.S. midwestern markets," Stelco said in the final prospectus for the initial public offering.
Mr. Kestenbaum said while proceeds from the IPO will be used for capital spending, going public also gives the company flexibility that will support further growth. In an interview earlier this year, he said Algoma Steel Inc. would be a natural fit and a possible acquisition target once it emerges from its third trip through the Companies' Creditors Arrangement Act. At the moment, its lenders are in the process of trying to bring it out of CCAA protection.
He did not answer directly in an interview on Friday when asked if Stelco planned to make a play for Algoma. "We're not going to identify specific targets," he said.
Stelco exited CCAA protection at the end of June after more than two years under court supervision and about 10 years after it was purchased by United States Steel Corp. in 2007. U.S. Steel placed what was then known as United States Steel Canada in protection in September, 2014.
The CCAA process led to the elimination of $3-billion debt and $1.4-billion pension and other postemployment benefit liabilities.