Ferrexpo cuts pellet production by 26% after Ukraine suspends VAT refunds

Ferrexpo, the London-listed iron ore producer with significant operations in Ukraine, reported a 26% year-on-year decline in pellet production during the first quarter, attributing the drop to the suspension of value-added tax (VAT) refunds by Ukrainian authorities.

The company disclosed in a press release on April 7 that it had scaled back its operations as a result of the VAT refund suspension, which amounted to approximately $12.5 million for January.

In Q1 2025, total pellet production decreased to 1.35 million tonnes, down from 1.81 million tonnes in the same period the previous year. Premium pellet output experienced a more significant decline, falling 36% to 1.11 million tonnes.

According to the press release, Ferrexpo reduced its operations from two pellet lines to one after the suspension of VAT refunds.

Interim Executive Chair Lucio Genovese commented, “The suspension of the VAT refund has resulted in lowering the available liquidity to fund the operations. This has forced us to immediately downscale our operations to one pellet line and to implement significant cost cutting measures."

Despite the decrease in pellet production, Ferrexpo's overall commercial output increased by 3% year-on-year to 2.13 million tonnes, driven by a 223% surge in commercial concentrate production, which reached 777,718 tonnes. Of the total output, 1.3 million tonnes were pellets, and 0.8 million tonnes were concentrate.

The company noted that the quarter marked its highest production levels since Russia's full-scale invasion of Ukraine in February 2022. The 67% Fe concentrate was primarily sold to customers in Asia.

"We are pleased that once again we have demonstrated our ability to adapt to changing market conditions, taking advantage of the demand for our concentrates in Asia,” Genovese stated.

Ferrexpo is 50% owned by Fevamotinico S.a.r.l., which is controlled by businessman Kostyantyn Zhevago. Zhevago faces charges related to the embezzlement of Hr 1.4 billion ($33.6 million) in a case involving Finance and Credit Bank, which led to its insolvency.

On March 27, Ferrexpo announced that Ukrainian tax authorities had suspended VAT refunds to the company due to personal sanctions imposed on Zhevago. The company contended that these sanctions should not be leveraged to apply financial pressure on Ferrexpo, particularly given that the majority of its voting shares are held by international investors.

In the same statement, Ferrexpo warned that the suspension of VAT refunds would force it to drastically reduce operations to just 25% of its full production capacity, with broader implications for Ukraine’s national economy.

This development followed an announcement in February by Ukraine’s State Bureau of Investigation (SBI) regarding plans to nationalize Poltava Mining, a Ferrexpo subsidiary majority-owned by Zhevago.

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