Ferrexpo boosts pellet output 2% yoy in 2014

Ukraine’s biggest iron ore pellet exporter Ferrexpo (FXPO LN, FXPOLN) made 11.02 mmt of pellets in 2014, a 1.9% yoy increase, the company reported on Jan. 6. The main factor was 65% yoy growth in pellet production from its iron ore at the Yeristovo Mine (to 3.41 mmt). At the same time, pellet output from the ore of its older Poltava Mine decreased 13% yoy to 7.26 mmt and pellet production from third party iron ore fell 5% yoy to 0.35 mmt. Regarding total pellet output, the share of its 65%-Fe product (as the alternative to 62%-Fe) increased to 53% in 2014 from 46% in 2013.

In 4Q14, the company reduced pellet output by 0.127 mmt (4.4%) qoq to 2.763 mmt, attributing the drop to to 0.144 mmt in underproduction in December due to an electricity shortfall. Pellet output was flat in 4Q14 on a yoy basis. The share of 65%-Fe pellets amounted to 62% of Ferrexpo’s total output in 4Q14, vs. 50% in 3Q14 and 46% in 3Q14.

Roman Topolyuk: The company’s December pellet output was in line with its plan to decreaseproduction by 0.14 mmt m/m as a result of rolling power cuts in Ukraine, which affected its facilities. The rolling power cuts were performed to provide power to industries in peak hours while relieving pressure on Ukrainian power stations to produce electricity, primarily due to a coal deficit.

In its Dec. 22 trading update, the company also highlighted that it may continue to under-produce in 1Q15 if the power cuts continue. The good news, thus far, is that Ukraine hasw beenable to find resources to cover the electricity deficit, via renewed imports of Russian coal for its thermal power stations and by securing electricity imports. This enables us to expect that Ferrexpo will work at close to 100% of pellet production capacity in 1Q15 (as well as in the rest of the year) to produce 11.8 mmt of pellets this year, or a 7% yoy increase.

Increased 65%-Fe pellet production will continue throughout 2015 as the company is close to finalizing its quality improvement program, launched in 2010. Such production will improve the competitive position of Ferrexpo on the market, enabling it to sell more premium products.