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NOVAMERICAN STEEL INC.
2006 Second Quarter Report
For the six months ended May 27, 2006

2006 Second Quarter Report
For the six months ended May 27, 2006

TO THE SHAREHOLDERS OF
NOVAMERICAN STEEL INC.

Second Quarter Results

Sales for the second quarter increased by $11.2 million, or 5.2%, to $229.2 million from $218.0 million for the same period in 2005.

Sales for the six months ended May 27, 2006 increased by $0.6 million to $424.9 million from $424.3 million for the same period in 2005.

Tons sold and processed in the second quarter of 2006 decreased by 6,618 tons to 482,752 tons from 489,370 in the second quarter of 2005. While tons sold in the second quarter of 2006 increased by 20,335 tons or 8.8%, tons processed decreased by 26,953 tons or 10.4% compared with the second quarter of 2005.

Tons sold and processed for the six months ended May 27, 2006 decreased by 3,000 tons to 935,058 tons from 938,058 tons for the same period in 2005. While tons sold for the six months ended May 27, 2006 increased by 30,441 tons or 7.0%, tons processed decreased by 33,441 tons or 6.7% compared with the same period in 2005.

The gross margin for the second quarter 2006 increased to 21.4% from 19.7% in the second quarter of 2005.

The gross margin for the six months ended May 27, 2006 increased to 21.5% from 20.3% for the same period in 2005.

Net income for the second quarter increased by $3.3 million, or 38.4% to $12.0 million, or $1.15 per share ($1.15 after dilution), versus $8.7 million, or $0.88 per share ($0.84 after dilution), for the same period in 2005.

Net income for the six months ended May 27, 2006 increased by $2.1 million, or 11.1%, to $20.9 million, or $2.02 per share ($2.00 after dilution), versus $18.8 million, or $1.91 per share ($1.82 after dilution), for the first six months of 2005.

All dollar amounts are expressed in U.S. dollars.

Operations

The Company reported strong demand and improving conditions throughout fiscal second quarter 2006. As expected, steel prices continued to rise during the quarter as availability remained a concern. The Company's inventory levels are well balanced with respect to current and forecasted demand.

Outlook

Steel demand is forecasted to be strong through the third quarter with some seasonal slowdown expected in July. Steel consuming industries such as non-residential construction, energy, mining, heavy equipment, railcar manufacturing and infrastructure spending continue to report encouraging forecasts for the summer months.

Import offerings for third quarter delivery are now either slightly below or slightly above North American prices, suggesting the flow of imported steel will drop significantly in the second half of 2006. If demand remains healthy in the second half of 2006, then steel pricing will likely stabilize or perhaps even rise further as the year progresses. We believe that steel consumers and service centers will be vigilant in managing inventory which increases the likelihood of firm prices through to the end of the year.


D. Bryan Jones Chairman of the Board and Chief Executive Officer

LaSalle, Québec
June 27, 2006

The matters set forth in Outlook are forward-looking statements that involve risks and uncertainties including, but not limited to, product demand, competition, regulatory approvals, the effect of economic conditions and technological difficulties and other risks detailed in the Company's filings with the U.S. Securities and Exchange Commission.

NOVAMERICAN STEEL INC.
Corporate and Investor Information

CORPORATE HEAD OFFICE
6001 Irwin Street
LaSalle, Québec
Canada H8N 1A1
(514) 368-6455 / (514) 335-6682
Fax: (514) 368-3635
www.novamerican.com

TRANSFER AGENT
Computershare Shareholder Services Inc.
P.O. Box 43023
Providence, RI 02940-3023
1-877-282-1168

INVESTOR INQUIRIES
Copies of the Company's public financial reports including the Annual Report on Form 20-F filed with the Securities and Exchange Commission, may be obtained from the Company's website, www.novamerican.com or by calling (514) 368-6455.

Novamerican Steel Inc. and Subsidiaries
2006 Second Quarter Report
In accordance with U.S. GAAP, expressed in thousands of U.S. dollars, except net income per share and tonnage.

Consolidated Statements of Operations, Comprehensive Income and Retained Earnings
(unaudited)

	Quarter ended						Six months ended
	May 27, 2006			May 28, 2005			May 27, 2005			May 28, 2005
	$			$			$			$
Net sales		229,184			217,962			424,886			424,319
Cost of sales		180,162			175,013			333,510			338,124

Gross margin		49,022			42,949			91,376			86,195

Operating expenses
Plant		11,532			10,793			23,294			21,558
Delivery		7,104			6,398			13,439			11,127
Selling		3,587			3,304			7,067			6,891
Administrative and general		7,994			7,804			15,311			15,213

		30,217			28,299			59,111			54,789

Operating income		18,805			14,650			32,265			31,406

Interest expense		256			1,368			609			2,518
Share in income of joint ventures		(259	)		(143	)		(448	)		(260	)

		(3	)		1,225			161			2,258

Income before income taxes		18,808			13,425			32,104			29,148
Income taxes		6,800			4,749			11,255			10,373

Net income		12,008			8,676			20,849			18,775

Net income per share
Basic	$	1.15		$	0.88		$	2.02		$	1.91

Diluted	$	1.15		$	0.84		$	2.00		$	1.82

Weighted average number of shares outstanding		10,450,000			9,877,084			10,333,782			9,831,587

Comprehensive income
Net income		12,008			8,676			20,849			18,775
Changes in cumulative translation adjustment		6,476			(1,978	)		10,416			(6,388	)
Change in fair value of interest rate swap, net of deferred income taxes		12			93			42			260

		18,496			6,791			31,307			12,647

Retained earnings
Balance, beginning of period		230,561			194,881			221,720			184,782
Net income		12,008			8,676			20,849			18,775

Balance, end of period		242,569			203,557			242,569			203,557

Tons sold		250,314			229,979			466,182			435,741
Tons processed		232,438			259,391			468,876			502,317

		482,752			489,370			935,058			938,058

Consolidated Statements of Cash Flows
(unaudited)

			Quarter ended				Six months ended
			May 27, 2006		May 28, 2005		May 27, 2005		May 28, 2005
			$		$		$		$
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		12,008		8,676		20,849		18,775
	Adjustments to reconcile net income to net cash from (used for) operating activities
		Depreciation and amortization	2,634		2,508		5,163		4,843
		Share in income of joint ventures	(260	)	(143	)	(448	)	(260	)
		Deferred income taxes	(164	)	63		(680	)	(178	)
		Loss on disposal of property, plant and equipment	3		104		3		104
	Changes in working capital items
		Accounts receivable	(15,521	)	864		(5,399	)	(1,874	)
		Income taxes receivable	(297	)	(2,814	)	2,064		(2,814	)
		Inventories	(11,968	)	27,236		(27,279	)	2,954
		Prepaid expenses and other	(87	)	(2,197	)	(1,662	)	(2,077	)
		Accounts payable and accrued liabilities	16,395		(13,548	)	6,573		(21,097	)
		Income taxes payable	(6	)	(5,655	)	(1,010	)	(19,402	)

	Net cash from (used for) operating activities		2,737		15,094		(1,826	)	(21,026	)

CASH FLOWS FROM INVESTING ACTIVITIES
	Loan to a Canadian Corporation		142		—		17,447		—
	Acquisition of minority interest		—		—		—		(204	)
	Distribution from joint ventures		(260	)	—		—		—
	Additions to property, plant and equipment		(1,172	)	(1,012	)	(6,053	)	(2,645	)
	Proceeds from disposal of property, plant and equipment		5		114		5		119
	Other assets		(5	)	—		(41	)	—

	Net cash from (used for) investing activities		(1,290	)	(898	)	11,358		(2,730	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Net increase (decrease) in bank indebtedness		(1,608	)	(4,868	)	(1,950	)	20,514
	Issue of common shares		—		5,182		4,113		5,182
	Advances due to an employee		—		75		—		495
	Proceeds from long-term debt		—		(3,937	)	—		2,345
	Repayment of long-term debt		(1,214	)	(1,706	)	(1,322	)	(3,032	)

	Net cash from (used for) financing activities		(2,822	)	(5,254	)	841		25,504

Effect of exchange rate changes on cash and cash equivalents			1,397		(201	)	2,139		(461	)

Net increase in cash and cash equivalents			22		8,741		12,512		1,287
	Cash and cash equivalents, beginning of period		60,295		4,008		47,805		11,462

	Cash and cash equivalents, end of period		60,317		12,749		60,317		12,749

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Interest paid		58		1,686		929		2,340

	Income taxes paid		7,916		13,772		11,201		30,723

Consolidated Balance Sheets
(unaudited)

			May 27, 2006	May 28, 2005	November 26, 2005
			(unaudited) $	(unaudited) $	(unaudited) $
ASSETS
	Current assets
		Cash and cash equivalents	60,317	12,749	47,805
		Accounts receivable	133,155	123,511	140,053
		Income taxes receivable	831	2,866	2,778
		Inventories	159,489	165,156	127,316
		Prepaid expenses and other	3,188	2,841	1,441
		Deferred income taxes	1,683	1,115	1,815

			358,663	308,238	321,208
	Investment in joint ventures		2,323	2,523	2,137
	Property, plant and equipment		106,983	101,830	102,794
	Goodwill		12,994	12,992	12,994
	Deferred income taxes		2,068	—	1,767
	Other assets		424	745	683

			483,455	426,328	441,583

LIABILITIES
	Current liabilities
		Current portion of long-term debt	40,204	53,120	3,078
		Fair value of interest rate swap	—	300	—
		Bank indebtedness	807	23,478	2,676
		Accounts payable and accrued liabilities	110,550	79,707	99,713
		Income taxes payable			998
		Deferred income taxes	34	—	338

			151,595	156,605	106,803
	Long-term debt		3,568	7,429	41,782
	Fair value of interest rate swap		—	—	71
	Deferred income taxes		15,913	13,757	15,968

			171,076	177,791	164,624

SHAREHOLDERS' EQUITY
	Share capital		38,904	34,791	34,791
	Retained earnings		242,569	203,557	221,720
	Accumulated other comprehensive income		30,906	10,189	20,448

			312,379	248,537	276,959

			483,455	426,328	441,583

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