Ukraine industry contracts 3.4% yoy in June

Ukraine’s industrial output fell 3.4% yoy in June after growing 0.2% yoy in the prior month, the State Statistics Service reported on July 21. For 1H16, industry increased 2.0% yoy. Production of metals slowed to 0.4% yoy growth from 7.4% yoy in May and chemical production slowed to 5.2% yoy growth from 8.4% yoy in May. Declines deepened in mining (-8.9% yoy in June vs. -3.5% yoy in May) and machinery (-2.4% yoy vs. -0.3% yoy). At the same time, utilities inched up by 0.1% yoy in June compared to a 1.9% yoy decline in the prior month.

Remarkably, production in the Luhansk region fell 12.0% yoy in June after an 83.0% yoy jump in May. Industrial output in the Donetsk region decreased 4.7% from -1.2% yoy in the prior month.

Alexander Paraschiy:The main reason for the June decline was a change in railway operations in the Donbas war zone that was implemented after the appointment of a new CEO, Wojciech Balczun, at the state railway company, Ukrzaliznytsia (UZ, RAILUA). UZ moved operational control of railway connections in occupied Donbas to Ukrainian-controlled territory in early June and imposed a ban on cargo traffic to and from the occupied territories, which resulted in a logistics stalemate. This has negatively affected steel production on the occupied territories and might have impacted iron ore mining volumes. The ban was lifted at the end of June and the railway connection has been restored. We anticipate metal producers to catch up with delayed output this month and further. So we are keeping our forecast unchanged, anticipating 2.0% industrial output growth in 2016.