Ferrexpo PLC (LSE: FXPO) said it has been producing at full capacity throughout the third quarter 2009, for the second consecutive quarter, and that pellet production from own raw materials rose by 0.3 percent in the third quarter from the second, to 2.248 million tonnes.
In an interim management statement for the period from July 1 to October 13 2009. it said pellet production from own raw materials was 0.8 percent lower than in the previous third quarter, when it reached 2.265 million tonnes.
Iron ore production in the third quarter dipped 4.1 percent from the second quarter of the current year, to 7.193 million tonnes from 7.501 million, while it was 0.6 percent lower year-on-year.
Demand has strengthened in Ferrexpo's core markets as Europe restocks and the global economic outlook improves. The company has reverted to selling the majority of its production to its portfolio of long term contract customers during the third quarter 2009.
Higher grade 65 percent iron pellet output has increased by 4.3 percent in the year to date, despite deliberately increasing the production of 62 percent Fe pellets in September to meet sales contract requirements, the group said.
Ferrexpo has now settled contract prices with customers representing over 85% of its long term contract portfolio by volume. The prices will apply to the relevant contracted period from Q4 2009, with most applicable through to March 31 2010. The new contract prices reflect a decrease of approximately 48.3 percent compared to the contract prices settled for the 2008/2009 contract year.
The company has long term contracts in place for approximately 90 percent of its output, with the remainder comprising trial cargoes to prospective new long term customers.
CEO Kostyantin Zhevago said: "Ferrexpo continues to deliver a strong performance despite weak global markets. I am very pleased with the progress we have made in switching our sales back to our portfolio of long term contract customers, which returns us to our higher margin core business. It should be noted in particular that the majority of Ferrexpo's European customers are now taking their full contract volumes, despite in many cases not being at 100% capacity utilisation themselves.”
When London’s only pure iron ore producer released interim results early in August, it reported, as expected, a significant drop in revenues and profits after iron ore prices corrected sharply from their highs in the first half of 2008.
Despite the global downturn, for the first six months of 2009 Ferrexpo’s mining operations in the Ukraine continued to operate a full capacity. Ferrexpo also reacted to demand for higher quality 65 percnt iron pellets. Sales ran at 100 percent of output (4.2 million tonnes), while the sales mix shifted significantly towards Asia (57 percent of volume) as European steel producers failed to lift their steel production during the first half, a trend that currently seems to be reversing.
One of Ferrexpo’s advantages is its location near both European and Russian markets by rail and international markets via the Yuzhny Port on the Black Sea which allows it to adapt quickly to changes in demand for its iron ore pellets. However, Ferrexpo did also note that while increasing sales via the seaborne market helped maintain full production, the seaborne spot market also exposed the Group to shipping freight rates.
Looking ahead to the remainder of 2009 when it reported interims in August, the mid-tier iron ore producer reported signs of “normalisation” of trade and increasing demand for its pellets from its more traditional regional customers. A rising spot price was also “underpinning” contract price settlements while the company’s highly regarded marketing skills were allowing it to gain market share. For the time being, the company intends to continue operating at full capacity, but any new major investment decision to expand capacity remains on hold.