6 October 2017
In Q3 2017 the company decreased total pellets production to the lowest level for the last three years (to 2.5M tons), reason – planned maintenance works.
In reporting period production decreased by 4.3% y-o-y and by 2% vs. Q2 2017. Premium 65% Fe pellets made 94% of total production volume.
In total in 9m 2017 Ferrexpo produced 7.653M tons of pellets, which has been by 8% lower than in corresponding period of Y2016 (reason is the same – maintenance works, due to good market environment the company can afford to somewhat decrease its production level without any damage to P&L).
General Ferrexpo pellets output dynamics during last years looked as follows:
Despite worsening of production figures, we expect good financial performance of the company for H2 2017 and the whole year. We maintain our forecast Ferrexpo EBITDA for Y2017 at USD 475-500M.
Main assumptions are as follows: factual EBITDA of the company in H1 2017 made USD 287M. Average iron ore index price (for iron ore with 62% Fe content) in Q3 has been at slightly above USD 70/t (we note sharp decline of global index from USD 80/t to USD 61/t in the second part of September).
We also expect that average index value in Q4 will make close to USD 55/t, pellets premium (difference between price of pellets with 65% Fe content produced by Ferrexpo and general 62% Fe iron ore index) will stay at above or close to USD 30/t (as a reminder, one of the closest competitors – Samarco – remains out of the market with unclear short-term prospects), while C1 cash cost of production – at about USD 32/t (seasonal UAH devaluation started in September is to be favorable for costs of Ferrexpo). So, under stated assumptions projected EBITDA of Ferrexpo for H2 2017 is about USD 180-200M.