Ukrainian Ferroalloy Plants Reduce Production

During the first two months of 2006, Ukraine’s two main ferroalloy producers cut their production. Specifically, Zaporizhzhya Ferroalloy (ZFER: BUY) produced 79.2 ths mt, a decrease of 16.6% yoy, while Nikopol Ferroalloy (NFER: Pend’g) decreased output by 6% yoy. Concorde Capital: The current drop in production is not surprising: in the early 2005 the global ferroalloy market was at a historical peak. Ukrainian ferroalloy producers export the lion’s share of their products, and enjoyed their highest output levels in early 2005. Thus, a yoy drop in 2M06 was natural. In addition, an electricity tariff hike in 2005 forced ferroalloy producers to reduce production of their most electricity intensive alloys. Another reason for the reduced output in Jan-Feb 2006 was lower demand from domestic steel makers, who started 2006 with a drop in output. We believe that ferroalloy production will recover later this year. As domestic steel producers will be increasing coke consumption to replace natural gas, consumption of ferroalloys will automatically grow. Our outlook for prices for ferroalloys is positive for this year, and we expect Ukrainian producers to improve their financials by the year end.