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Ferrexpo profit drops amid Ukraine war and global iron price decline

2nd Aug 2023 09:12

(Alliance News) - Ferrexpo PLC on Wednesday reported sharp drops in interim profit and revenue, due to substantially lower iron ore pellet production and lower prices.

Ferrexpo is an iron ore pellet producer and exporter with operations in Ukraine. Shares in the firm were down 1.6% at 91.18 pence on Wednesday morning in London. They are down 36% over the past 12 months.

The company reported a pretax profit of USD35.5 million in the six months ended June 30, down sharply from USD155.7 million in the previous year. Meanwhile, revenue in the half-year plunged 64% to USD334.0 million from USD935.9 million, due to lower production and realised prices.

Total pellet production dropped 59% to 2.0 million tonnes in the recent half from 4.8 million tonnes a year prior. Sales volumes declined by 52% to 2.1 million tonnes from 4.4 million tonnes the previous year. This came as the average Platts 62% Fe iron ore fines price fell to USD118 per tonne from USD140 per tonne, the company noted.

Ferrexpo said the fall in iron ore pricing was due to the tightening of monetary policy, declining levels of stimulus by central banks, and the resulting negative impact on steel demand, especially in the world's largest steel producer, China.

"Following the easing of pandemic restrictions at the end of 2022, a sharp increase in Chinese demand was anticipated, however, this has failed to emerge. Instead, new patterns in Chinese demand have been observed, with steelmakers transitioning to a low-inventory operating model to manage working capital," Ferrexpo explained.

"This has further discounted upside risk in pricing that the current low inventory levels in China now would have traditionally indicated. Steel margins, often an indicator of the outlook for iron ore fines pricing in the medium term, have remained negative for hot rolled coil steel products in China due to weakening end-user demand. Market commentators suggest that this will eventually lead to more steelmakers curbing production, thus further reducing demand for iron ore.

"These factors, combined with an overall bearish macroeconomic backdrop, has led to management's expectations that there will be downward pressure on iron ore pricing in [the second half of] 2023," the company concluded.

Discussing the war in Ukraine, Ferrexpo said the situation remains "challenging", with ongoing operational and logistical pressures, but said that there is a "renewed sense of optimism" in the country.

While its power supply stabilised in the first half of 2023, Ferrexpo still does not have access to the port of Pivdennyi on the Black Sea in Ukraine. It explained this has hurt potential sales, as not all its volume can be delivered to customers in Europe via railcars and river barges on the Danube.

Russia's invasion is expected to have a continued significant negative impact on the Ferrexpo for the remainder of the year, it said.

By Heather Rydings, Alliance News senior economics reporter

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