Despite intense cost-cutting measure, Swedish iron ore miner LKAB reported a loss for 2015. Continued oversupply of iron ore and low prices for iron ore fines in the global market has placed pressure on the company’s profitability. LKAB will increase cost cuts for 2017 by an amount that exceeds last year’s realized cost savings of MSEK 800 ($94.3 million).
Even though LKAB delivered 24.2 million metric tons (mt) in 2015 and posted MSEK 16,200 ($1.9 billion) in sales revenue, it reported a loss of MSEK 5,686 ($670 million).
“Although the underlying operating result is positive, LKAB is reporting a loss for 2015 — which underlines the importance of adapting our operations. The current market situation and the future prospects mean, however, that we must reduce annual costs further, and we are now planning new actions,” said Jan Moström, president and CEO, LKAB.
A new efficiency program will focus on providing a cost reduction that exceeds what was implemented previously. It is planned to be presented during the second quarter of 2016 and to be fully effective in 2017.
Demand for LKAB’s processed iron ore products remains good and the premium for pellets provides price advantages in a challenging market. However, LKAB said it needs to do more to secure increased volumes and more stable production.
During the year, production was disrupted by difficulties with the supply of raw materials from the underground mines and the replacement of a mantle ring in one of the pelletizing plants in Kiruna. Production and delivery volumes returned to normal during the fourth quarter and amounted to 6.8 million mt, with the proportion of pellets at 82%.
LKAB’s strategy to maximize pellet production remains in place. However, the company said its target volume of 37 million mt/y will happen later on and the new open-pit mines at Svappavaara will primarily supply raw materials to existing processing plants.