In the first half of 2024, LKAB, Sweden’s leading mining company, encountered significant operational and market challenges that impacted its financial performance. The company's net sales and operating profit both saw declines, primarily due to missed deliveries at the beginning of the year. These missed deliveries were largely attributed to derailments on the Iron Ore Line, a crucial transport route for LKAB's iron ore products. Despite these setbacks, the company reported a turnaround in the second quarter, with an operating profit increase to MSEK 2,666, up from MSEK 2,257 in the previous year.
The second quarter saw net sales rise to MSEK 9,851, compared to MSEK 9,350 in the same period last year. This increase was mainly driven by higher deliveries and a weaker Swedish krona, which bolstered the company’s revenue. Additionally, insurance payouts received during the quarter, as compensation for the missed deliveries caused by the earlier derailments, contributed to the improved financial results. However, the first half of the year was still challenging overall, with net sales declining to MSEK 15,322 from MSEK 21,306, and operating profit falling to MSEK 4,036 from MSEK 7,443.
Globally, the average spot price for iron ore products remained high, at $112 per metric ton for the quarter, slightly above the $111 per metric ton recorded in the same quarter of the previous year. However, this was a decrease from the first quarter of 2024, where the price was $12 higher. Quoted pellet premiums remained consistent with those of the same period in the previous year, reflecting stable demand for high-quality iron ore products.
High inventory levels allowed LKAB to deliver 6.4 million metric tons of iron ore during the quarter, an increase from 5.8 million metric tons in the previous year. Nevertheless, the company continued to face significant challenges with the Iron Ore Line. The sensitivity of the track was highlighted during the quarter when track buckling, or "sun kinks," caused a ten-day halt in traffic between Kiruna and Narvik. In response to these ongoing issues, LKAB made the difficult decision to cut back production of finished products by approximately one million metric tons on an annual basis.
In a further effort to optimize mine production, LKAB announced the mothballing of production in the Konsuln area, which is adjacent to the Kiruna mine. This decision reflects the company’s need to balance production capabilities with the limitations imposed by the Iron Ore Line's current capacity. The company is actively working with the Swedish Transport Administration and other stakeholders to manage these operational challenges, but it emphasizes that political decisions and investments are needed for long-term solutions.
Production for the quarter remained steady at 5.3 million metric tons, the same as the previous year, despite extensive scheduled maintenance stoppages and production disruptions. Looking ahead, LKAB has planned significant maintenance work at one of its pelletising plants in Kiruna during the autumn, which will last several months. This maintenance is critical to addressing deficiencies and will also provide the company with time to evaluate further production adjustments as it continues to collaborate with the Swedish Transport Administration on improving the Iron Ore Line.
Tragically, the quarter was marked by a fatal accident in the Kiruna mine, the second such incident within six months. The Swedish Work Environment Authority's inspection, along with LKAB’s internal investigation, revealed shortcomings in safety protocols. As a result, the company has implemented several measures to enhance safety, including targeted inspections focused on machine safety. LKAB is committed to building a proactive safety culture, ensuring a healthy and safe work environment for its employees and contractors.
