Korean shipbuilder bidding for submarine contract agrees to $345M deal with Algoma Steel

Algoma Steel inks $345 million deal with Hanwha Ocean predicated on the Korean firm winning a Canadian submarine contract.

A major shipbuilder from South Korea has signed a memorandum of understanding with Algoma Steel, which would see the Sault Ste. Marie steelmaker receive up to $345 million to develop a structural steel beam mill.

The agreement is contingent on South Korean businesses winning the contract to build a new fleet of submarines for the Canadian military.

Officials from Korea are headed to Canada this week in support of their bid, which is valued at more than $12 billion. It is competing with businesses from Germany.

Monday, Algoma Steel and Korea’s Hanwha Ocean announced they had entered into a binding MOU related to the “future submarine program with Canadian steelmaking capability and Canadian workers, supporting long-term naval readiness and industrial sovereignty.”

Structural steel beam mill

If the deal moves ahead, Algoma will receive $275 million from Hanwha to develop a structural steel beam mill in Sault, as well as promises to purchase products from Algoma for the submarine production, bringing the value of the deal to $345 million.

The steel Hanwha would purchase from Algoma would be “for use in connection with its Canadian Patrol Submarine Project-related commitments, including submarine construction and the development of maintenance, repair and overhaul infrastructure required to support the fleet throughout its operational lifecycle in Canada,” said a Monday news release announcing the agreement.

“The strategic arrangement is intended to strengthen Canada’s domestic industrial base while supporting the long-term operational needs of the Royal Canadian Navy. If the contemplated beam mill project goes ahead, the operation would support the creation of new skilled, long-term Canadian jobs.”

If the deal moves forward, Algoma would be required to make payments to Hanwha for 10 years equal to three per cent of the net sales of the beam mill facility.

“This partnership is about working side-by-side with Algoma as a leading Canadian steelmaker to build something lasting,” Hee Cheul Kim, president and CEO of Hanwha Ocean, said in the release.

‘New era’ for Algoma Steel

“By anchoring steel production, infrastructure and long-term sustainment in Canada, we are committed to strengthening Canada’s industrial resilience and supporting a submarine capability that Canadians can rely on today and for generations.”

“As we usher in a new era for Algoma with electric arc furnace steelmaking and modernized finishing capabilities, this strategic arrangement with Hanwha Ocean represents a foundational step forward in our diversification strategy,” added Algoma CEO Rajat Marwah.

“It reinforces our focus on becoming Canada’s leading sustainable steelmaker, aligned with the country’s nation-building priorities in defence and infrastructure.”

“We also recognize and applaud the Government of Canada’s support for policies that strengthen domestic manufacturing, supply-chain resilience, and long-term industrial capability,” Marwah added.

Since its establishment in 1973, Hanwha Ocean has built more than 1,400 vessels, including the design, construction, and sustainment of submarines and surface combatants for the Republic of Korea Navy.

Hanwha Ocean’s shipyards cover an area of approximately five million square metres, employ around 31,000 people and build approximately 45 commercial and naval ships each year.

The contract would be a major boost for Algoma Steel, which has been harmed by the imposition of 50 per cent tariffs by the U.S. on steel and aluminum exports. It recently announced plans to reduce its workforce by 1,000.