Ukraine’s merchandise trade deficit narrowed to $1.7bn in January from $3.0bn in December as exports rose by 6.0% m-o-m to $3.4bn (+8.6% y-o-y) and imports slumped by 18% m-o-m to $5.1bn (+4.9% y-o-y).

Ukrainian iron ore exports jumped by 94% m-o-m to 3.1 Mt in January (+236% y-o-y) following an 18% drop in December. In value terms, iron ore exports surged by 108% m-o-m to $296m (+167% y-o-y). Steel exports rose by 17% m-o-m to 400 kt (+337% y-o-y), increasing in value terms by 18% m-o-m to $218m (+247% y-o-y).

A group of investors holding an undisclosed amount of Ukrenergo’s $825m sovereign-guaranteed notes announced recently that it hired a legal advisor to discuss a potential liability management transaction. The bondholder group argued for a restructuring process separate from Ukraine’s prospective broader sovereign restructuring exercise, potentially in exchange for revoking the bond’s explicit state guarantee. Should activist investors consolidate 50% of the Ukrenergo bond principal, they may succeed in blocking its aggregation within the $21.2bn of sovereign debt and thus negotiate softer restructuring terms.

The Cabinet of Ministers has asked the NBU to issue individual permits for cross-border foreign currency transfers with the purpose of servicing external debt for seven corporate Eurobond issuers including DTEK Energy, DTEK Oil & Gas, DTEK Renewables, Metinvest, Interpipe, Kernel Holding and Vodafone Ukraine. The government’s permit requests, collectively adding up to $1.9bn, covered both past debt service payments, which the companies had made using their offshore accounts, and repayments scheduled for 2024.

Crude steel production in Ukraine totaled 544 kt in January, up 4.4% m-o-m and 92% y-o-y, with finished and semi-finished steel output falling by 11% m-o-m but surging by 76% y-o-y to 453 kt and hot metal production being flat m-o-m and up 45% y-o-y at 555 kt.

Hryvnia-denominated deposits at Ukrainian banks fell by 3.1% m-o-m to UAH 1,577bn in January after rising by 8.7% in December, remaining 32% higher y-o-y. F/X deposits inched up by 0.6% m-o-m to $19.4bn (+7.4% y-o-y) on top of December growth of 1.9% m-o-m. Gross UAH loans increased by 0.2% m-o-m and 2.2% y-o-y to UAH 728bn in January, with F/X loans down 1.9% m-o-m and 9.6% y-o-y to $6.5bn.

According to the latest monthly survey conducted by the Ukrainian Institute for Economic Research (IER), the percentage of manufacturing enterprises operating at a capacity load of 75%+ was flat m-o-m at 59% in January, with the share of idle firms also unchanged m-o-m at 4%. Perceived security risks subsided last month, mentioned by 46% of respondents, down from 53% in December. Rising input costs caught up with security risks on 46%, with labor deficit taking third place among key business obstacles on 41%. Demand weakness followed on 38%, up from 30% in December. Other impediments included power outages, supply chain disruptions, and complicated logistics.

The Ukrainian Economy Ministry estimated real GDP growth in January at 3.5% y-o-y (+/-1.0pp).

Ukrainian banks reported a combined net loss of UAH 23bn ($0.6bn) in 4Q23, down from net profit of UAH 42bn ($1.1bn) in 3Q23, trimming 2023 net income to UAH 87bn ($2.4bn), still up sharply from UAH 22bn ($0.7bn) in 2022.

DTEK reported that one of its thermal power plants was hit by a Russian strike overnight, causing “serious” damage and forcing the plant to stop production. The Ukrainian Energy Ministry said the attacked plant was located in the Dnipropetrovsk region.

The European Council approved yesterday a decision requiring that Central Securities Depositaries holding more than EUR 1 million of immobilized assets and reserves of the Russian central bank (CBR) account these assets and any ensuing net profits separately. According to a Council press release, the decision paves the way for the Council to decide on the possible use of these net profits towards establishing a financial contribution to the EU budget with the aim of supporting Ukraine’s recovery and reconstruction. This contribution may eventually be channeled through the EU budget to finance the recently approved EUR 50bn Ukraine Facility.

Ukrainian banks reported a combined share of non-performing loans (NPLs) of 37.4% as of end-2023, down 0.8pp y-o-y following 11.5pp growth during the earlier wartime period of March-December 2022. The sector-wide capital adequacy ratio totaled 21.1%, up 1.4pp y-o-y on top of a 0.7pp increase in March-December 2022.

Investor sentiment towards the Ukrainian corporate universe improved in early 2024, likely bolstered by only limited Russian attacks against the domestic energy infrastructure this winter and rapidly recovering exports via Ukrainian Black Sea ports.

Headline CPI increased by 0.4% m-o-m in January on top of 0.7% in December, slowing on a y-o-y basis to 4.7% from 5.1% in November-December. Core inflation, an indicator adjusted for administratively regulated tariffs and prices of raw foods and energy, increased by 0.4% m-o-m after being unchanged in December but decelerated in y-o-y terms to 4.6% from 4.9%.

An IMF team led by Uma Ramakrishnan, deputy director of the IMF’s European Department, has arrived in Kyiv for meetings with Ukrainian authorities. Policy discussions on the third review of the IMF’s $15.6bn 4-year EFF program will start in Warsaw on Feb. 17. On a related note, Bloomberg reported on Friday that Ukraine is preparing a plan aimed at covering a potential shortage of budget financing in the absence of US aid. The plan mostly relies on expansion of government bond sales, which could bring in at least $5.0bn this year, an increase in taxes and a reduction in spending, if needed.

Polish farmers resumed their protest on Feb. 9, partially blocking large cities in Poland and automotive cargo traffic to and from Ukraine at three major border crossing points of Yagodyn, Rava-Ruska and Shegyni (blockade of the latter was lifted on Feb. 10). The protesters said their strike would last for a month.