Ferrexpo output drops in Q3 as margin pressure continues

Commercial production totalled 1.40m tonnes in the three months to 30 September, down 16.4% on the year before, with the company operating one to two pelletising lines out of four during the period.

However, for the first nine months of the year combined, production was up 47.5% at 5.13m tonnes owing to weak comparatives in the first half of 2023 as production was impacted heavily from the war.

The company, which has nearly 700 employees currently serving in the Armed Forces, has had to import 80% of its electricity from "western neighbours", which is more expensive and continues to have a negative impact on costs. "This has been exacerbated by elevated shipping freight rates and additional war risk insurance premiums," said Ferrexpo interim executive chair Lucio Genovese.

The underlying EBITDA margin dropped to 14.4% in the first half, from 19.2% a year earlier. The company did not disclose a margin figure for the third quarter.

"To mitigate the pressure on margins, our strategy has been to focus on sales of higher quality iron ore products to customers in close geographical proximity. This included expanding our customer base and sales of premium priced DR pellets in the MENA region," Genovese said.

To make matters worse, iron ore prices have declined sharply in recent months, with 65% Fe average prices dropping from $130 an ounce at the half-year stage to bottom out at $100 an ounce during the third quarter – a level not seen since 2022.

However, Ferrexpo said recent stimulus measures in China have been "encouraging", as prices began to recover on the back of an improvement in sentiment.

"The pessimism surrounding iron ore prices appears to have lifted for now, however, the recent volatility of the third quarter does not provide any certainty that prices will remain at these levels or improve further," said chief financial officer Nikolay Kladiev. "We will continue to keep a vigilant approach to our financial and operating performance for the remainder of the year."

Shares were down 1.7% at 44.54p by 0905 BST.