The recent rally in iron ore prices and tight availability of iron ore pellets suggest Ferrexpo’s cash flow in 2017 will be better than previously expected, according to Standard & Poors. The Ukrainian pellet producer is thus likely to meet its maturities in the next 12 months.

“That said, we expect that the company will continue to rely on supportive iron ore prices because it has over $500 million in debt that will mature in the coming two years and no committed credit facilities in place,” S&P says in a note seen by Kallanish.

S&P has raised its long-term corporate credit rating on Ferrexpo to 'B-' from 'CCC' and its short-term rating to 'B' from 'C'. The outlook is stable.

The recent jump of iron ore prices to over $80/tonne is seen as not sustainable, S&P says. The credit rating agency recently revised upwards its price assumption for iron ore to $55/t in 2017 and $50/t in 2018, reflecting the impact of stimulus measures that Chinese policymakers enacted in 2016. A change of $10 in the price of iron ore has an impact of $110 million-120 million on Ferrexpo's ebitda, according to S&P.

“In addition, we anticipate that the iron ore pellet market will remain very tight in 2017, as Brazilian pellet producer Samarco's pelletizing plant remains idle and environmental regulations force iron ore producers to use more pelletized iron ore,” S&P observes.

“We understand that several players in the industry have already agreed the premiums for a material portion of their capacity in 2017 with their customers,” the agency continues. “They are quoting an increase of $15-20/t on average prices of about $25/t in 2016.”

S&P projects Ferrexpo’s adjusted ebitda will be $470 million-500 million in 2017, compared with $360 million-380 million in 2016. However, 2018 ebitda will be $150 million-200 million, reflecting lower iron ore prices and the potential return of Samarco to the market.