Ukrainian iron ore miner Ferrexpo has cut its December production outlook due to lower power supplies and will reduce spot sales to give priority to long-term contracts if the situation continues in the first quarter of 2015.
The group, majority owned by Ukrainian billionaire Kostyantin Zhevago, said this month’s total pellet production was expected to be 140,000 tons lower than previous estimates.
Ferrexpo’s production cut is the latest example of how Ukraine’s electricity supply shortage is affecting businesses in the country. Ukraine used to be self-sufficient in coal, but separatist fighting in Donetsk and Luhansk regions halted production at more than half the coal mines that fire power plants, causing an electricity shortage.
Around 10% of Ukraine’s power capacity was idled as some 20 coal-fired units were shut down due to a lack of coal stocks.
If the power supply situation remains unchanged into the first quarter of 2015, Ferrexpo said it would reduce spot sales to increase production of its 65% premium products and to meet its long-term supply contract obligations.
The Ukrainian government allowed businesses to import their own electricity to cope with the shortage, and Ferrexpo said it was working with power suppliers to mitigate the situation.
The company said it had funds to cover two months of operating and capital expenditures as the drop in the Ukrainian Hryvnia against the U.S. dollar had cut production costs to $44 per ton in November.
Its production over the 11 months of the year, before Ukraine’s power supply shortage worsened, was 3% higher than in 2013 at 10.2 million tons, Ferrexpo said. (https://uk.reuters.com/article/2014/12/22/ukraine-crisis-ferrexpo-idUKL6N0U60LE20141222/Ukrainian metal)