The divorce between United States Steel Corp. and U.S. Steel Canada Inc. will likely lead to new bids for the Canadian unit, sources familiar with the restructuring say.

U.S. Steel Canada has been effectively cut loose from its parent company under a transition agreement announced last week that includes a promise that the Pittsburgh-based U.S. Steel will not be a bidder if there is a second effort to sell the Canadian unit.

Potential bidders were put off during the first sales effort by a process they believed was skewed in favour of U.S. Steel, sources said.

“There are people out there who want to rebid,” said one source involved in discussions about the future of U.S. Steel Canada. “Now, we have a sensible sales and restructuring process.”

The promise that U.S. Steel will not bid for the company means other purchasers don’t have to worry about a potential claim of more than $2-billion that U.S. Steel applied against the Canadian company and had been planning to use as credit in its own bid.

The transition agreement approved by the Ontario Superior Court on Friday makes U.S. Steel Canada an independent company still operating under the protection of the Companies’ Creditors Arrangement Act. It effectively creates a clean slate for new bidders or companies whose earlier bids were rejected because they didn’t meet conditions set up by U.S. Steel.

The agreement provides new debtor-in-possession financing of $75-million, the payment by U.S. Steel of remaining 2015 pension contributions and the provision of two more years of services by the parent company.

But the court also approved the suspension of health benefits to about 20,000 retirees and dependents and a halt in payments of municipal taxes to Hamilton and Haldimand County, Ont., where the only U.S. Steel Canada mill that is actually making steel is located.

The tough challenge for the Canadian unit until it is sold is re-establising itself amid a severe downturn in North American steel markets and making up for the loss of revenue caused by the shift of its highest-value contracts out of Canada to U.S. Steel mills in the United States.

Steel prices have plunged, U.S. Steel has laid off thousands of U.S. workers and other North American steel makers, such as Essar Steel Algoma Inc. of Sault Ste. Marie, Ont., are in distress.

“What you have is a structural crisis in the whole industry,” said Peter Warrian, a senior research fellow at the University of Toronto’s Munk School of Global Affairs.

Steel makers have been battered by the collapse of the energy market and a flood of imports into North America that has helped send prices for hot-rolled coils to about $400 (U.S.) a tonne from $600 earlier this year.

On average, mills are running at 72 per cent of capacity in North America, versus 80 per cent in what would be a healthy environment, said Andrew Lane, who follows the industry for Morningstar Inc. in Chicago.

While demand from the auto industry is running at close to record-high levels, Mr. Lane noted there is little room for that demand to grow, and the energy market is expected to remain in a slump through the end of the decade.

“Those two factors have created a perfect storm of headwinds for [parent company] U.S. Steel that is likely to weigh on results in the coming quarters,” he said.

The series of events at Essar Algoma last week offers a sign of how difficult the North American steel market will be for a newly independent steel maker to compete while trying to rebuild its own sales force and survive on $75-million in debtor-in-possession financing that will remain in place through the first half of 2016.

Algoma issued layoff notices to 100 hourly employees, was threatened with the termination of a supply agreement by iron-ore producer Cliffs Natural Resources Inc. and watched Standard & Poor’s Rating Services trim the rating on its debt.

Essar Algoma “will face a liquidity crisis within the next six months unless steel prices materially improve in the near term or the company receives outside financial support,” S&P said.

The woeful state of North American steel markets is to blame, the rating agency said.

“We base our downgrade of ESA on continuing depressed North American hot-rolled steel and plate prices, which we estimate have severely constrained the company’s liquidity position,” S&P analyst Jarrett Bilous said.

For its part, Essar Algoma has filed for a restraining order against Cliffs to make sure it continues to provide raw materials while a dispute over payment is resolved.

In terms of the market, spokeswoman Brenda Stenta said Essar Algoma does not expect a recovery in the short term.

“Prudent use of cash and resources is necessary in order to ride out this market cycle and ensure the stability and security of the organization over the long term,” Ms. Stenta said.

The poor state of the markets does not discourage Bill Ferguson, head of United Steelworkers Local 8782 in Nanticoke, Ont., from believing that a buyer will come forward.

“We do have one of the best production facilities in North America,” Mr. Ferguson said. The Lake Erie mill was built in 1980, but is the youngest integrated steel mill in North America.

Dr. Warrian agreed the assets should be attractive to buyers, including possibly Essar Algoma, which kicked the tires at U.S. Steel Canada during the first sales process.

He noted, however, that “investors are fleeing the steel industry, not flocking to it.”

But a strategic buyer that will keep the mills in production would be a better solution than bottom feeders that buy assets and sell them for scrap, he said.