In its latest quarterly financial report, Swedish iron ore producer LKAB said it is continuing to focus on improving efficiency through cost control and volume and productivity increases. Despite stable production and improved delivery volumes, the company lost MSEK -277 ($33 million) for the quarter, where hedging activities had the main negative impact.
“The hedges were entered into at the low iron ore prices that prevailed during the fourth quarter of 2015,” said Jan Mostroem, president and CEO, LKAB. “The hedging was carried out in order to alleviate the effects of price and exchange rate changes in the market. This meant that LKAB was not able to take full advantage of the price increase during the second quarter of 2016.”
Demand for LKAB’s processed iron ore products remains good, the company said. For the quarter, the company produced 6.1 million metric tons (mt) and shipped 6.7 million mt, with pellets accounting for 83%.
During April, the spot price for iron ore rose to $70.5/mt, its highest level in the year to date. The increase was largely driven by speculation and stabilized shortly thereafter at around $50/mt. The average price for the quarter was $56/mt.
In the first half of 2016, the company worked to transform the organization into three business divisions in order to increase production and reduce costs. The efficiency program initiated in 2015, aimed at reducing the number of employees by 400, was completed in the first half of 2016. LKAB will continue to reduce its cost base.
“The aim is to reduce the cost base by at least MSEK 800 ($96 million) by the end of the first quarter in 2017,” Mostroem said.
The company plans to reduce the requirement for consultants and contractors and eliminate 200 more positions.