- Ferrexpo shares are up 4% on reports of a 27% production decline
- The importance is that many thought the performance would be worse
- As ever, it's new news which moves share prices
Ferrexpo (LON: FXPO) shares are up 4% today on the back of the Q2 2022 production results – those show a 27% decline in production. This is something of an oddity perhaps, that the FXPO share price rises as production declines, but everything is subject to the Thomas Sowell question “Compared to what?”. We can also consider this an example of the efficient markets hypothesis, that it's new news which moves share prices.
For, of course, Ferrexpo is operating in the Ukraine and as many will have noted there are certain problems in that area at present. As Ferrexpo has pointed out before the military actions are not affecting its production directly. But they are, definitely, affecting logistics. That is, transport of finished iron ore to consumers is being held back. And, to a large extent, iron ore is a business that relies upon those transport statistics. It's a large, bulk, low value item. How and at what cost you can ship it is the very lifeblood of the business. Much of it happens by sea, the cheapest method of transporting bulk materials and access to the ports is largely closed off at present.
Ferrexpo is therefore moving their production by rail to European consumers, much as it did before. There are talks going on to enable the use of ports in neighbouring countries but nothing solid as yet. It's that inability to service consumers by sea that is limiting production that is.
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It's worth looking at their actual production statistics here:
In normal times we'd not be happy with that sort of production decline. But these are not, of course, normal times. Much of the bad news is already encapsulated into the Ferrexpo share price. That we've all already noted there's a war on is why the Ferrexpo share price is down from the near £5 it was a year back.
So the current movements of that share price aren't dependent upon the things we already know. Which is what that EMH, efficient market hypothesis, says. That it's new news which moves share prices, not olds. The news today is that the production limitations are not as bad as some were thinking they could be. Sure, of course business is being damaged. But not as badly as could be believed before this information. Thus the rise in the share price.
As to off into the future clearly Ferrexpo is going to be driven by the outcome of the varied military actions. A geographic expansion into central Ukraine of events would be extremely bearish for the stock. A rapid end and clearance of the sealanes bullish to a more moderate extent. Which way it's going to go, of course this is something we don't know as yet.
The news today is that Ferrexpo is holding up better than we would think an iron ore miner might in an era of military action. Which is why the Ferrexpo share price rose on today's news.