Ferrexpo PLC (LSE:FXPO), an exporter of iron ore pellets from Ukraine, said it will cut back short-term production due to logistical problems and a build-up of inventories resulting from Russia’s invasion.
The world's third-largest exporter of high-grade iron ore pellets said further infrastructure damage from a Russian missile strike in southwest Ukraine has reduced the company’s ability to use its barging operations to supply European customers.
The group's barging operations accounted for 0.8 million tonnes of iron ore deliveries in 2021, equivalent to about 7% of the total 11.3 million tonnes sold by the company last year.
The FTSE 250 group previously announced it was forced to divert its iron ore pellet sales to European markets through Ukraine's railway network, as well as via the company’s barging operations, because of the closure of Ukraine's Black Sea Ports following Russia’s invasion.
Russia's invasion has resulted in periodic disruption to the railway network across the country, with the national rail operator having to consistently repair and re-open damaged sections of the railway network following Russian air strikes.
Separately, Ferrexpo said it is in advanced talks with additional port operators in central Europe for seaborne exports, whilst the Black Sea ports remain closed.
As of the end of May 2022, the group produced 4.4 million tonnes of iron ore pellets, down 8% from the year-earlier period. It also reported a combined 0.4 million tonne increase in iron ore inventories for March, April and May, which it said it plans to reduce once logistics constraints ease.
“As a result of the damage to infrastructure and increase in inventories of iron ore pellets referenced above, the group will lower production for a period of time, until an alternative logistics route is agreed, damaged infrastructure is reopened and/or Ukraine's Black Sea ports resume activities,” the Swiss-headquartered company said in a statement.
Ferrexpo said it will continue to operate between one and three of its four pelletiser lines for production, meeting accessible demand in European and seaborne markets.
"Russia's invasion of Ukraine has created a changeable and unpredictable situation, and one in which our management team is continually having to adapt and evolve our approach to operating,” said chief executive Jim North.
“In light of the news announced today, we are lowering our short-term production schedule for the summer months, and we will look to increase production once we have greater clarity on logistics going forward.”
The shares were down 7.1% at 152.70 pence in mid-morning trading.