Iron ore prices developed relatively strongly in the first quarter of 2016. However, the price level was lower than the same period last year, which meant that Swedish iron ore producer LKAB’s operating profit for the quarter totaled MSEK 171 ($21 million) compared to MSEK 375 ($46 million) last year. In light of the expected market oversupply, the company views the recent upturn in iron ore prices as temporary.
For the quarter, LKAB’s production volume continued to improve, amounting to 6.9 million metric tons (mt) compared to 6.2 million mt last year, partly due to an increased supply of crushed ore from the underground mines and more stable processes in the processing plants. Deliveries reached 6.3 million mt (5.9 million mt last year), with pellets accounting for 86% (87%). The company said measures to reduce costs are ongoing. Compared with the same quarter in the previous year, costs excluding provisions for urban transformation were reduced by 10%. In the program for reducing the number of employees by 400, around 90% of this has been achieved. Within urban transformation, the focus is on cost efficiency and compensation models to ensure access to land in both the phase-out and development areas. At the beginning of 2016, compensation principles for the acquisition of properties were presented, and in Kiruna, construction of the new city hall is in progress. The situation remains challenging for LKAB, and work to introduce a new group structure to adapt the company to these market conditions and to shift responsibility closer to production is well under way.