Ferrexpo resumes pellet production from purchased concentrate

Iron ore miner and pellet producer Ferrexpo (FXPO LN,
FXPOLN) resumed this month production of pellets from purchased concentrate,
according to Metal Expert, a Ukrainian industry consultancy. Ferrexpo purchased
50 kt from Russia’s Metalloinvest in September and is considering purchasing
30-40 kt in October, Metal Expert reported, citing a recent increase in pellet
premiums as the reason for Ferrexpo’s decision.

Ferrexpo’s pellet production from purchased
concentrate dropped to 50 kt in 2017 from 143 kt in 2016 and 403 kt in 2015. In
1H18, Ferrexpo produced 14.5 kt of pellets from purchased concentrate, down
from 21.5 kt in 1H17.

Dmytro Khoroshun: It is
positive that Ferrexpo is trying to capture short-term gains by utilizing its
spare pelletizing capacity, of which it has about 1.2-1.5 mmt p.a. if it uses
only its own concentrate. Such a use of Ferrexpo’s funds is arguably better
than alternatives such as stripping
and storing lean ore for many years.

We retain our neutral view on FXPOLN Eurobonds.