Algoma Steel is banking on a renaissance with its multimillion-dollar plan to go electric

Algoma Steel Inc.’s ASTL-T smokestacks have been a fixture on the bank of the St. Marys River at the eastern end of Lake Superior for more than a century. Its mill has played a crucial role churning out an essential ingredient for the country’s industrialization as well as jobs for generations in Sault Ste. Marie, Ont.
That’s meant long-term benefits, as the company provided the region with employment and an economic base. But with that has come uncertainty during a number of flirtations with bankruptcy as steel markets gyrated. The use of coal in its blast furnaces triggered climate-warming emissions along with health concerns among nearby residents.
Now Algoma is on the brink of a major shift. Three years after its most recent change in ownership, it is installing manufacturing technology that the company says will not only slash greenhouse gas emissions, but also guard its financial future.
The new equipment eschews coking coal and blast furnaces in favour of scrap metal that, with a massive charge of electricity, will produce what’s known in the industry as green steel.
Algoma chief executive officer, Michael Garcia, says the construction of two electric arc furnaces, or EAFs, will expand the roles of the company and the Sault to supply an important building block for the energy transition, while becoming a major metal recycler in the process.
The modernization is aimed at turning the region’s largest employer into an operation that emits far less carbon and other pollutants, while making it less susceptible to swings in prices for raw materials, Mr. Garcia says of the project, which is now expected to cost between $825-million and $875-million.
“Any time you’ve been making steel for 120 years, you have to make sure that the technology and the asset base that you’re using to make steel is competitive and that it’s well maintained. So you’re always spending a lot of money to maintain your existing asset base,” he says. “Then, as technology progresses, there’s always going to be inflection points where you have to change technology.”
Locals aren’t the only people with a stake in this change. The federal government is kicking in $420-million of public money as part of its strategy for meeting international climate targets. Algoma’s is one of two publicly supported moves by steel producers to EAF production. ArcelorMittal Dofasco in Hamilton has embarked on a $1.8-billion project, which includes $400-million contributed by Ottawa and up to $500-million from Ontario’s provincial government.
When fully operational, Algoma’s project is expected to reduce CO2 emissions by three million tonnes annually, or 70 per cent. That equates to more than a tenth of Canada’s 2030 goal under the Paris Agreement. It will also eliminate smokestack and fugitive emissions, the company says. The first furnace is expected to begin startup operations at the end of this year.
On a recent visit to the mill, the site was busy with workers preparing foundations and assembling equipment within the massive structure that will house the EAFs. Sounds of grinding, welding and hammering added to the constant hum of steelmaking machinery at the complex.
In the fight against climate change, steel presents a thorny problem. Its blast furnaces require metallurgical coal to make coke, and that generates carbon emissions. Estimates place the industry’s contribution to global greenhouse gas emissions at 8 per cent. That figure increases when methane emitted from coal mining is factored in.
Yet steel is a necessity for the low-carbon transition, as are other materials with troublesome emissions, such as concrete and insulation. Steel forms the backbone of infrastructure for clean power grids, rail transport, wind turbines, electric vehicles and a host of other gear that will be required in the coming decades. Electric furnaces are one way to reduce the impact on the climate.
It is not new technology – more than two-thirds of steel produced in North America is made this way. But the equipment will transform the way Algoma operates, and as the company proceeds, help clean the air in the community after decades of sending black dust downwind and coating homes, cars and backyards in nearby neighbourhoods.
Under the plan, Algoma aims to eventually charge up the mill solely with electricity from the Ontario grid, which has low carbon intensity owing to its mix of generation dominated by nuclear and hydro. Initially, the new equipment will be powered by Algoma’s own natural-gas-fired generating plant and an existing grid connection. A second phase involves construction of an 11-kilometre, 230-kilovolt line from the west end of the city to the plant, making use of available capacity.
Beyond that, the province is planning bulk upgrades to the grid in northeastern Ontario, with Hydro One applying to add transmission infrastructure to be in service in 2029, which will allow more electrification for the mill.
In a traditional operation such as the one Algoma has operated for decades, coal is transformed into coke in an oven. Iron ore and limestone are added and then fed into the blast furnace to make iron, which is turned into steel in a basic oxygen oven. Algoma’s main products are hot- and cold-rolled steel sheet and steel plate.
With an EAF, scrap metal, and, if required, pig iron, are fed into the furnace, and purity of the finished product is adjusted by the quality of the feedstock. Algoma’s production capacity will increase to 3.7 million tonnes per year from the current 2.8 million, with the switchover taking place in phases, the company says. A big economic benefit: The operation is far less at the whims of the market for feedstock, Mr. Garcia says.
“There’s a market for scrap and it tends to be pretty correlated with the sale price of steel, so you always have an opportunity make a margin and cover your cost. When your cost of raw materials increases, it’s correlated to the cost of the finished product you’re selling, so they kind of move together,” he says.
“It’s not that case when you’re a blast furnace operator – the price of metal could fall to very low levels and you really can’t do anything about it in your cost base.”
Residents in neighbourhoods near the plant say they support changes that could improve their quality of life, though some of the anticipation is tempered by concerns about what they may face in the future.
Locals are accustomed to trying to avoid dust from the plant – habitually covering their drinking glasses if they want to enjoy cold beverages and forgoing hanging laundry outside, says Jessica Crack, a student and lifelong resident of the Sault, who volunteers in the community by taking pictures and reporting on pollution to the provincial environment department.
Now, she’s concerned about the high-voltage transmission lines that will power the operations. “I’m excited but I’m also very nervous. I wonder if there are any side effects,” she says.
There is also some skepticism in the community about whether EAF-produced steel is truly green. Transporting scrap metal and finished steel products by ship will generate emissions, and cleaning chemicals out of the scrap metal could cause gases to be released and toxic leakage, says Peter McLarty, vice-chair of the local citizens’ environmental group Clean North.
“So it’ll be better, significantly better from a carbon-emissions standpoint. But the other environmental issues are still going to be there,” Mr. McLarty says.
The project is expected to be completed by the end of this year, after hitting a series of snags, which included COVID-19-era supply chain problems and inflationary pressure, which have pushed project costs up by as much as 25 per cent.
As a business, Algoma is banking on a renaissance. It’s no stranger to financial upheaval when the economy faltered and steel prices tumbled. The company underwent restructurings in 1932, 1992 and 2002. In 2007, India’s Essar Global Ltd. bought Algoma, but eight years later, shaky steel markets and heavy losses forced Algoma back into bankruptcy court. It emerged as a private company in 2018.
Algoma returned to public markets in 2021 after it was acquired by Legato Merger Corp., a U.S. special purpose acquisition corporation, in a $1.3-billion deal.
When the company announced the transaction, it said EAF project would be a top priority. It also recently completed a two-year, $130-million project to modernize its steel plate mill.
One of the of the tough aspects of the changeover for the community is the plant will require fewer workers, because of the efficiency of the technology. It currently employs about 3,000 people, and once it makes the transition, that number will fall to 1,600 to 1,700, Mr. Garcia says.
“We know that’s a big impact on our work force. We’re open and honest about that. We don’t shy away from it. But the fact is we’re going to be a stronger, bigger company in terms of shipments. That will give us a platform to continue to grow and invest in new opportunities,” he says.
With reporting from Deborah Baic