Ukraine industry falls 5.4% in August

Ukrainian industrial output fell 5.4% yoy in August, resulting in a 5.2% yoy drop in 8M13, according to state statistics released on September 17. All core industries except mining were in the red: chemicals -25.0% yoy, machinery -14.5% yoy, metallurgy -2.4% yoy, and utilities -1.8% yoy. Mining increased 1.1% yoy in August driven by 5.5% yoy growth in iron ore extraction.

Alexander Paraschiy: The poor industrial output in August was very disappointing. In fact, we anticipated that a low statistical base should underpin industrial statistics in 2H13, but that did not begin to happen. At present, we are seeing sliding demand from Russia for machinery products, beyond trade restrictions temporarily imposed in August. Also chemical production is not able to compete due to high prices for natural gas, a basic input. Even metallurgy that seemingly improved in July (+1.6% yoy) did not experience an anticipated price revival.

The situation will hardly change in the upcoming months. Chemical production was halted at several key fertilizer-producing factories. Investment demand – the main driver for machinery – is not expected to revive in Russia. Prospects for metal demand remain obscure, while permanent risks could emerge from a new wave in the ongoing trade conflict with Russia. Against this backdrop, we are lowering our industrial output estimate to -3.5% yoy from -2.5% yoy for 2013.