Algoma Steel Signs Binding MOU with Hanwha Ocean for Submarine Project, Amid Ongoing EAF Transition Risks

What happened

Algoma Steel announced a binding memorandum of understanding with Hanwha Ocean for a long-term strategic arrangement to support Canada's future patrol submarine program, potentially securing a new demand stream for its steel products. This partnership aims to leverage Canadian steel and industrial expertise, but it arrives as the company is focused on executing its critical electric arc furnace conversion to lower costs and emissions. The DeepValue report highlights near-term soft fundamentals, with negative earnings and elevated policy risks, while recent filings like the November 2025 6-K provided no operational updates, masking progress on key watch items. Although the MOU could align with potential 'green steel' demand trends, it does not directly address core challenges such as EAF commissioning, power pricing volatility, or scrap sourcing. Investors should view this development as a strategic positioning move that does not immediately alter the company's precarious operational footing or the HOLD recommendation based on execution uncertainties.

Implication

For investors, this strategic arrangement signals Algoma's effort to diversify demand into government-backed submarine steel supply, which could provide future order stability if executed effectively. However, it does not resolve the pressing issues of negative earnings, high interest coverage, and the unproven EAF conversion, which are critical to improving cost competitiveness and margins. The MOU may enhance Algoma's appeal in 'green steel' initiatives if the submarine project prioritizes low-emission materials, but this hinges on successful EAF deployment and competitive power contracts. Key watch items from the master report—EAF commissioning, cost input security, and policy risks—remain unchanged and demand closer monitoring than this announcement. Consequently, while the news adds a positive narrative layer, it does not warrant a shift from the HOLD thesis until tangible operational progress is demonstrated.

Thesis delta

The core HOLD thesis, centered on execution risks from the EAF transition and soft near-term fundamentals, remains unchanged. This MOU introduces a new strategic element that could support long-term revenue but does not directly address the critical watch items of EAF ramp-up, power pricing, or tariff volatility. Therefore, no material shift in investment stance is indicated; investors should continue prioritizing operational de-risking over speculative partnerships.