LONDON--Ukrainian iron ore producer Ferrexpo PLC (FEEXF) said
Monday it has cut its December production due to power constraints
and said it will reduce spot iron ore sales in order to give
priority to its long-term contracts if the situation continues in
the first quarter of 2015.
Ferrexpo, the world's fifth largest supplier of iron ore
pellets, cut its December production forecast of the steelmaking
ingredient by 140,000 tons due lack of sufficient electricity,
making the Switzerland-based firm the latest company to suffer
setbacks as a result of the ongoing crisis in eastern Ukraine.
The country has until recently been self-sufficient in coal but
the heated conflict between separatists in eastern Ukraine has
meant that coal-fired power stations haven't been able to source
enough coal from a region that accounts for a large portion of the
country's coal mines. Ukraine has responded by imposing rolling
blackouts to compensate for a roughly 10% power-supply
shortfall.
Ukrainian authorities are introducing measures to mitigate this
situation, including importing coal and electricity as well as
allowing companies to directly import electricity.
Ferrexpo said it has enough iron ore stocks to make up for the
shortfall in December but may have to operate at current reduced
levels if the power shortfall persists into the first quarter. The
company plans to prioritize long term contract sales over spot
sales and increase production of iron ore with 65% ferrous content
to cope with reduced production capacity.
Analysts at JP Morgan estimate that the power crunch crimped the
company's production to 85% of its full capacity in December.
Should the power constraints persist next quarter, the bank
forecast it would have to cut its 2015 Ferrexpo iron output
estimate by 4% to 11.5 million tons.
Ferrexpo said the situation should improve in the second
quarter, once the old winter period of high power demand ends. It
also noted that it has enough liquidity to cover two months worth
of costs, taking into account the hyrvnia's devaluation which has
reduced its production cost to $44 a ton in November from $47.80 a
ton in the first half of the year.
The company also said iron ore production rose 3% to 10.2
million in the first 11 months of the year, just before the Ukraine
crisis began to take its toll on its operations.
At 1419 GMT, the company's shares were flat at 50.5 pence a
share, having fallen by more than a fifth over the past two
weeks.
Write to Alex MacDonald at alex.macdonald@wsj.com
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