Aerial view of Essar Steel Algoma Inc.
Essar Steel Algoma Inc. has hired restructuring advisers amid a steep decline in the price of steel that is battering North American steel makers, sources familiar with the situation said.
The price of steel in North America has fallen by more than 33 per cent in the past year, forcing the Sault Ste. Marie, Ont.-based company to issue layoff notices to 100 people and prompting Standard & Poor's to downgrade its credit rating on the company's debt.
Algoma has hired law firm Weil Gotshal & Manges LLP and restructuring specialists Evercore Partners Inc. to advise it, Reuters news agency reported Monday.
Essar Steel Algoma did not respond to a request for comment.
The steel maker restructured its debt in July, 2014, after considering its third trip through creditor protection under the Companies' Creditors Arrangement Act. It reached a deal with debt holders to restructure that debt, but has an interest payment of $18-million (U.S.) due next month.
The debt downgrade was announced by S&P earlier this month.
"Generally soft demand, excess global steel capacity and high imports into North America are primarily responsible and we expect prices to remain weak at least into 2016," S&P credit analyst Jarrett Bilous said at the time.
At the same time, Essar Algoma was in a court battle with iron ore supplier Cliffs Natural Resources Inc., which threatened to cut off its supply of iron ore. The steel maker has found another source of supply.
Essar Steel Algoma is owned by the Essar Group of India, which purchased Algoma for $1.85-billion (Canadian) during the heady days of the mid-2000s when soaring steel prices led to the buyout of all major Canadian-owned steel makers by foreign interests.
Before that, Algoma had been restructured twice under the CCAA. The first led to a worker buyout of the company that was backed by the Ontario government.
Its current woes come as U.S. Steel Canada Inc., the Canadian unit of another global steel maker, United States Steel Corp., has been operating under court protection for more than a year.
U.S. Steel Canada's financial results, filed with the Ontario Superior Court on Monday, show it lost $343-million in the first nine months of 2015 amid the deteriorating North American steel market.
The loss came on revenue of $986.1-million and compares with a loss of $526.6-million in all of 2014, the court-appointed monitor overseeing the company's operations under the protection of the Companies' Creditors Arrangement Act said in its 14th report on the company.
Steel shipments in the nine months were 1.39 million tons, compared with 2.33 million in all of 2014.
Since U.S. Steel Canada was granted CCAA protection in September, 2014, steel prices have fallen to a little more than $400 a ton, from more than $650 a ton.
The monitor's report covers the period before the recent divorce between U.S. Steel Canada and its parent United States Steel Corp., and underscores the difficulty the newly independent company faces as it tries to re-establish itself in the market.
Making matters worse, the recent divorce includes the shift of U.S. Steel Canada's most lucrative contracts from its steel making mill in Nanticoke, Ont., and finishing mills in Hamilton to its former parent company's U.S. operations.
U.S. Steel paid $1.1-billion to buy then Stelco Inc. in 2007.