Ferrexpo pellets output declines 1.4% yoy in 9M12

Ferrexpo (FXPO LN) reported today a 1.4% yoy decline in 9M12 pellet production to 7.2 mmt, having slightly improved by 0.9% the quarterly figure for 3Q12 to 2.4 mmt. Pellet output from purchased ore decreased 58% yoy to 222 kt in 9M12 and 43% qoq to 60 kt in 3Q12. The company continued to produce more 62% grade pellets (+9.5% qoq to 1.4 mmt in 3Q12) than 65% Fe content product (down 9% qoq to 1.0 mmt).

Roman Topolyuk: The company’s 3Q12 operating results are 3% higher than our estimate mainly because of higher concentrate production from its own ore (+2.9% qoq), while mining remained flat (+0.8% qoq), which can be explained by the higher grade of ore mined. The quarterly production of pellets from purchased concentrate came in close to our projections, confirming our estimates of the waning profitability of this segment. The slant toward 62% pellet output follows management’s explanation that this product is currently earning a higher margin compared to 65% pellets, because of the company’s current set of facilities. This will be an area for improvement once Ferrexpo finalizes a project to upgrade pellet quality in 2014, producing all pellets with 65% grade. We estimate Ferrexpo might post higher growth in sales volumes qoq than this moderate increase in production, since 170 kt in contracted pellets sales for 2Q12 were actually executed in 3Q12, according to the company.