Last year, the Ukrainian iron ore industry was completely reshuffled by two large deals: the merger of Metinvest and Smart group midyear and the divestiture of Privat group’s ferrous metals & mining assets to Russian Evraz in late 2007. By yearend, Metinvest controlled nearly half of domestic sinter feed production and supply of sinter feed to the tradable local market. Moreover, with Evraz group, Metinvest jointly operates Pivdenny Iron Ore, further extending its influence on the regional iron ore market.
All six iron ore producers in our coverage universe benefit from stellar demand. Driven by expansion projects in the Ukrainian steel industry, we estimate increase in local demand for agglomerate and pellets, and for lump ore by 2012. Exports will continue to rise as well, supported by the sheer growth of Asian markets (+125% yoy in 2007). We forecast prices for Ukrainian iron ore to jump in 2008 on the back of strong demand worldwide.
Three local iron ore players are set to increase production in the mid-term, while the growth potential at the other three will be benign. Only two companies in the sector report financials that reflect their true economies, in our view.
Number one in liquidity, without a doubt, is Ferrexpo, with monthly volumes averaging USD 50-70 mln on the LSE. The next two are Poltava and Pivdenny Iron Ore, which together print 90% of the sector's combined USD 9-10 mln in turnover on the PFTS each month. The other three stocks trade sporadically due to limited free float.
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