Algoma faces challenge from low-cost producer.

The new, employee-owned Algoma Steel Inc. of Sault Ste. Marie is banking on flat-rolled steel products as the foundation for its future profitability.

However, the integrated steel producer may be facing stiff competition in the near future from the world's lowest-cost steel producer - Nucor Corp. of North Carolina.

Nucor can produce only one million tons of commodity grade steel each year, but it is setting prices for the entire North American industry by capitalizing on an energy-efficient process called thin-slab casting.

To make matters worse, the company now plans to make a substantial investment in flat-rolled steel and quadruple its capacity to four million tons by 1996. Nucor presently has two per cent of the North American market.

However, Leo Ostroski, an interim Algoma board member and president of United Steelworkers Local 2251, says Nucor is no threat to his company's business.

"We plan to beat the pants off them. We are more concentrated in Ontario and the industrial heartland of the U.S., and we have plans to convert in the long term to strip-casting, an experimental process which would bypass hot rolling."

Industry analysts, however, indicate that the process will not be in commercial use for another 15 years.

In the end, says Ostroski, Algoma has a tradition of being a reliable supplier with a quality product.

The new Algoma and union have signed a negotiations protocol and are working together to redesign operations to reduce costs, increase productivity and enhance the skill content of jobs.

A five-year business plan, forming the operational basis for the restructuring, places the future profitability of Algoma with flat-rolled products. Both structural and tubular products will also generate cash flow over the next five years, but for the long term their potential is less stable.

"We are going to continue with the flat-rolled plate and slabs," says Ostroski. "That is our bread and butter."

"We are in tubular and structural as long as there is a sure return or profit and it doesn't cost us money to produce it."

Algoma's restructuring plan includes the purchase of a $30-million round caster and the use of hot metal transfer to reduce costs.

"The completion of these projects would reduce the cost of supplying raw material," claims Ostroski.

However, he indicates that the decision to proceed rests with Algoma's future board. No doubt it will be made based on the prospects of the oil industry.

"The problem with tubular is it is very dependent on the oil market, and exploration has declined considerably in the past 10 years," Ostroski explains.

Meanwhile, Ostroski merely shrugs at the news of renewed trade wars between the Canadian and American steel industries.

"Every four years the Americans go crazy because it's an election year, but common sense will prevail," he says.

Ostroski is confident that Canada would win any trade dispute.

Six large U.S. steel producers were expected to file for trade restrictions last month on hot- and cold-rolled steel because Canadian, Korean, European and Japanese firms receive export subsidies.

Industry analysts expected that Canadian steel producers would retaliate.