Key points:
- Ferrexpo's up 7% on an ESG report which seems a bit much
- Perhaps investors do value ESG conformity that much
- The big influences for the future will be peace and the iron ore price
Ferrexpo (LON: FXPO) shares are up 7% this morning on the back of, well, news on their greenhouse gas emissions actually. Which, for an iron ore producer working on the edge of a war zone is a pretty strange piece of reporting to have that effect. It's possible, just about we guess, to think that there will be a boost from environmental, social and governance (ESG) investors as a result of this report but we'd be wary of thinking that that will have such a large effect in just the one day.
It's possible to think that perhaps the boost is because Ferrexpo is in fact continuing with the usual and normal operations – even while being on the edge of a war zone. Investors, perhaps, thinking that if they're willing to continue with this sort of exercise then matters must be reasonably and boringly normal, despite events. We still tend to think this share price movement in FXPO is a little large for the information content of the actual news but there we are.
The actual news itself really is that they've completed an “external assurance process” on their safety record and also on their Scope 1 and Scope 2 emissions. Scope 1 is what happens in their supply chain, Scope 2 their own operations. Scope 3 is the emissions from the use of their output but of course those are Scope 2 to the next company down the line and so don't need to be double counted. The effect of this assurance programme is simply that investors can now take what Ferrexpo says as being true, true according to the standards that the ESG industry itself says are true.
Also Read: Investing in Metal Stocks
As to the larger issues which we'd expect to influence the Ferrexpo share price there are really two major and one minor. The company is continuing to mine iron ore, make pellet and so on, despite events. There's a certain restriction though, the ability to ship product out. Which is the minor influence here, if rail routes to – say – Romanian ports are opened and so on. That will enable currently being stockpiled material to get out but, of course, at a cost in higher transportation costs. That will be a benefit but not a game changer.
The first of the other two major points are, of course, current events themselves. Those are having that effect upon transport and the ability to go back to simple and efficient seaborne transport is unlikely until all is finally over. The second is that one which afflicts all miners – the price of the output. The iron ore price that is. Ferrexpo tends to be sending into Europe, and high end pellet at that, a price which isn't directly linked – but is obviously indirectly – to the Chinese consumption. So, a collapse in the global price won;t feed through, one for one, to the Ferrexpo achieved price but will obviously influence it. If we really are heading into a recession and that Chinese construction industry also collapses then that's a big risk to FXPO.
This note about gaining ESG approval is, well, it's nice, but the real influences upon the Ferrexpo share price are the global economy and local peace.