Ferrexpo (LON: FXPO) shares have been doing surprisingly well given events in Ukraine, where the company’s operations are based. There was the near halving for the Ferrexpo share price as hostilities broke out, but they’ve slightly recovered from that. The big question is how long can this carry on?
As Ferrexpo itself says, the government in Ukraine has asked that economic activity carry on. As the fighting is not directly around the corporate operations that’s what they’re doing. As the production report says, output is 11% down on a quarter by quarter basis, but around steady on this quarter against same q last year. Whether we think that’s good or not is a matter of opinion but it’s not the wipe out we might worry about in a war zone.
As ever though, with any form of corporate report, it’s worth reading a little between the lines. Production is not impacted, as yet at least, but transport is. Iron ore – even of pellets – is a high volume and low price item. So, it’s often shipped by, well, by ship at sea, rather than by land. That route out of the Ukraine is now cut off – more specifically, the port of Pivdennyi, which is equipped for iron ore loading. This means that shipment must be by rail or barge, which is what is being done. But that means shipment only to those European steel plants reachable by those methods – and it’s that which is limiting production. Not the ability to produce, but to be able to ship once sold. That’s what is reducing production, a choice by management based on what can be shipped to buyers.
We’ve worried about Ferrexpo shares here before. That worry being that if Russia prevails then how good is title going to be in the new Ukraine? Will it still be true that the people who own things now will be the people who will then own them? Predictions about what is going to happen are impossible at present, of course.
On the other hand, consideration does have to be given to what the likely situation is going to be after it is all over. That Ferrexpo can currently maintain production – OK, 11% down off last quarter – shows that physical damage in their region, or to their plant, isn’t happening. It’s entirely possible that port facilities could suffer long-term damage, but as is currently true Ferrexpo can export 90% of possible production by rail and barge.
It’s possible therefore to think that – without a considerable expansion of hostilities – that this is about as bad as it gets for Ferrexpo. That could be true and that’s a likely explanation of the partial recovery in the share price. Whether it will continue depends, as ever, upon events. Plus the considered opinions of other investors as to what those events are going to be.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.