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Swift change of fortunes hits hard at Algoma Steel.

Swift change of fortunes hits hard at Algoma Steel

There are no minced words when James Melville, vice-president and treasurer of Algoma Steel Corporation, describes last year.

"1989 was a bad year," Melville said.

However, he pointed out there are two stories from 1989, involving the first and second halves of the year.

To the end of June, the company had pre-tax earnings of $18 million.

"The second half was not unlike falling of a cliff," said Melville. In that time period, the company had a pre-tax loss of $24 million.

The executive concluded that 1989 was a dismal year, which fell far short of the company's expectations.

Net earnings in 1989 declined to $8.4 million from $81.2 million in 1988.

The results for 1989 include a significantly higher pension expense caused principally by the adoption of the pension cost assumptions used by the corporation's parent, Dofasco Inc.

"The trend at the end of the year was significantly unfavorable," Melville said, pointing to a number of factors.

The auto industry took a downturn in late 1989, meaning a rapid decline in demand and price for ASC's sheet and strip products.

Capital expenditures in Canada were discouraged by high interest rates, adversely affecting sales of structured and plate steel, Melville said.

The energy industry continued at a depressed level, hurting ASC's sales of tubular casings. Melville noted that the last good year in the energy industry was 1985.

Finally, the Canadian dollar was relatively strong, hurting ASC's ability to export, while at the same time, making imports more attractive.

"On Dec. 31, 1989, I would say nothing was working in our favor and all economic factors to our detriment," Melville said.

"The conditions today are not significantly improved. I would suggest they have significantly worsened."

Melville explained that demand can't be controlled, nor can price, since a customer will only pay what a competitor is charging. In such a situation, a company can match the price or not sell, since there is no third alternative.

There has been a decrease in the number of people employed at Algoma Steel in the last year because of the downturn.

At the end of February there were 7,681 company employees in Sault Ste. Marie, Wawa and outlying district sales offices. There had been 8,655 employees at the end of last June.

"There have been jobs lost because of the downturn," said Melville.

Despite the problems, he believes the markets can improve and he noted that ASC is always trying to develop new markets.

Algoma Steel learned in 1982 not to sit back and wait, he added.

"It's tantamount to ignoring the problem," he said. "Our only available strategy to cure this slide, this declining performance, is to address our costs."

To avoid increasing its debt, ASC has halted all construction at its operations, with the exception of construction related to environmental controls.

The environmental work includes a large water filtration plant which was commissioned in late March. It significantly reduces the discharge of water-borne contaminants such as suspended solids and oils.

Melville said the results could be seen just after the commissioning. "Mind you, it cost $25 million, so we expected it would work."

ASC is also placing push-emission controls on the coke oven battery, which Melville said is the most environmentally unfriendly operation in a steel mill. The controls will reduce air pollution.

In addition, a biological plant is under construction to reduce phenols to a more acceptable level.

Melville said the company is planning to invest $50 million in 1989/90 on environmental projects.


Despite the corporation's problems, Melville doesn't blame any of them on the Canada/U.S. Free Trade Agreement.

In fact, he pointed to some beneficial aspects of the deal for Algoma Steel.

The corporation has been affected by anti-dumping penalties imposed on steel rails by the United States, but he said free trade provides an opportunity to appeal the penalties.

Melville also noted that last year the U.S. placed quotas on steel-producing countries, with Canada being one of only three exceptions.

While business goes on, the most visible change in the Algoma Steel operation will occur over stages this year as the administrative functions are relocated inside the steel plant gates from the Queen Street W. building the company has occupied for about 50 years.

A number of functions have also been consolidated to Hamilton with Dofasco, which purchased ASC in mid-1988. Most of the functions are related to accounting and treasury.

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Title Annotation:Focus on Sault Ste. Marie; 1989 earnings decline
Author:Bickford, Paul
Publication:Northern Ontario Business
Date:May 1, 1990
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