According to the latest monthly survey conducted by the Ukrainian Institute for Economic Research (IER), the percentage of manufacturing enterprises operating at capacity loads of 75%+ inched up by 1pp m-o-m to 59% in December, with the share of idle enterprises also up 1pp to 4%. Security risks topped the list of businesses’ major concerns last month, having been mentioned by 53% of firms, up from 38% in November and a new wartime high. Labor force shortage was second, mentioned by 46% of enterprises, up from 32% in November, while input costs, previously the major obstacle, slid to third place, cited by 43% of firms vs. 41% in November. Other major constraints included demand weakness, power outages, and supply chain disruptions.

The Ministry of Finance placed UAH 6.4bn ($170m) of hryvnia-denominated bonds and EUR 45m of F/X-denominated debt at a primary auction yesterday.

The State Customs Service reported a merchandise trade deficit of $27bn in 2023, of which $3.0bn was accumulated in December, up from $2.0bn in November. December exports rose by 1.8% m-o-m to $3.2bn (-7.7% y-o-y), bringing the full-year tally to $36.2bn (-18% y-o-y), while imports jumped by 21% m-o-m to $6.2bn (+3.1% y-o-y), hitting $63.5bn in 2023 (+14% y-o-y).

Ukraine’s iron ore exports fell by 18% m-o-m to 1.6 Mt in December (+110% y-o-y), partially reversing November’s 28% jump and bringing the full-year export volume to 17.8 Mt (-26% y-o-y). In value terms, iron ore exports increased by 8.1% m-o-m to $143m in December (+99% y-o-y) and fell by 39% y-o-y to $1.8bn in 2023. Steel exports surged by 40% m-o-m to 342 kt (+117% y-o-y) in December, bringing full-year exports to 3.0 Mt (-32% y-o-y). In value terms, steel exports rose by 32% m-o-m to $184m last month (+81% y-o-y) but slid by 45% y-o-y to $1.8bn in 2023.

Hryvnia-denominated deposits at Ukrainian banks rose by 8.7% m-o-m to UAH 1,628bn in December, accelerating from +3.5% m-o-m in November and bringing y-o-y growth to 35%, up from +19% in 2022. F/X deposits increased by 1.9% m-o-m to $19.2bn (vs. -0.2% m-o-m in November), rising by 12% y-o-y in 2023 after dropping by 0.9% in 2022.

Ukraine signed a bilateral security cooperation agreement with the UK during PM Rishi Sunak’s visit to Kyiv on Friday. The ten-year accord, taking effect immediately upon signature and intended to serve as a bridge towards prospective NATO membership for Ukraine (while not ruling out Ukraine joining NATO earlier), has the following key chapters: In the event of future Russian military aggression against Ukraine, the sides are to consult within 24 hours and the UK undertakes to “provide Ukraine with swift and sustained security assistance, modern military equipment across all domains as necessary, and economic assistance; impose economic and other costs on Russia.” The UK will “contribute to the development of Ukraine’s defense industrial base, and identify opportunities for closer defense industrial partnerships,” including supporting “localizing repair and maintenance and manufacturing of UK defense products in Ukraine.” Ukraine reiterates its commitment to economic, governance, anti-corruption and defense reforms, with priority areas being further progress towards EU and NATO membership and the IMF program. The sides will cooperate in a number of other areas such as protection of critical infrastructure; cyber security and intelligence sharing (“to detect, deter and disrupt Russian conventional aggression, espionage and hybrid warfare”); combating Russian information manipulation and propaganda; and combating serious and organized crime. With the agreement being a framework document, the UK and Ukraine would develop additional technical accords on specific cooperation areas.

Ukraine steps up work on fortifications, according to new OSINT analysis; front lines little-changed for another week

Ferrexpo reported 4Q23 pellet production of 0.6 Mt, down 50% q-o-q and up 50% y-o-y, with the entire output, as before, consisting of 65% pellets. For the full year, the company produced 3.8 Mt of pellets, down 36% y-o-y. Quarterly concentrate production totaled 50 kt (-49% q-o-q, +25% y-o-y), with full-year output at 307 kt (+148% y-o-y). Total production thus stood at 0.7 Mt in 4Q23 (-50% q-o-q, +48% y-o-y) and 4.2 Mt in 2023 (-33% y-o-y). Ferrexpo said it continued to operate up to two of its four pelletizers. The company did not use seaborne deliveries last quarter but considers starting another pellet line and exporting its produce via Ukrainian ports. Ferrexpo reported end-2023 cash of $109m, down from $135m at end-June 2023 but close to $106m as of end-2022.

WSE-listed Kernel Holding, Ukraine’s largest sunflower oil producer and grain exporter, reported new transactions with company Eurobonds conducted by its management between Jan. 5-9 and involving the purchase of $11.0m of Kernel 2024 notes at an average price of 84.5% of par and disposal of $8.2m of 2027 notes at 65.2% on average.

Crude steel production in Ukraine totaled 6.2 Mt in 2023, down 0.6% y-o-y, with finished and semi-finished steel output rising 0.4% y-o-y to 5.4 Mt and hot metal production falling 6.1% to 6.0 Mt.

Headline CPI stood at 5.1% y-o-y in December, in line with November, decelerating sharply from 26.6% y-o-y at the end of 2022. Headline inflation averaged 12.9% y-o-y, down from 20.2% in 2022 but higher than 9.4% in pre-war 2021. Core inflation slowed to 4.9% y-o-y in December from 5.7% in November and 22.6% at end-2022, averaging 12.9% for the year, down from 16.0% in 2022.

The average day-ahead base load electricity price fell by 9.6% m-o-m to UAH 3,654/MWh in December, remaining up 11% y-o-y and bringing the full-year average to UAH 3,374/MWH (+26% y-o-y).

The Ministry of Finance placed UAH 2.9bn ($75m) of hryvnia-denominated bonds and $358m of F/X paper at a primary auction yesterday.

The NBU published the final results of its sustainability assessment of the top-20 banks, confirming that the banking system overall currently has a high safety margin, with the maximum capital shortage across the system estimated at UAH 10bn ($0.26bn). The NBU identified three banks with elevated risk of capital losses over a three-year horizon, including state-owned Ukreximbank, foreign-owned Pravex Bank and locally owned MTB. The central bank said their prospective capital shortage stemmed from their low operating efficiency, i.e. low interest margins and high operating expense/income ratios. These banks will be required to submit to the NBU restructuring and/or recapitalization programs with a focus on asset restructuring and operating efficiency improvement. At the same time, state-owned Oschadbank demonstrated strong capital resilience in the NBU model, its total capital ratio seen almost doubling over three years to 30%.

The Ministry of Economy reported a provisional merchandise trade deficit of $2.3bn in December, slightly wider than $2.0bn in November and bringing the full-year gap to $27bn.

Natural gas production in Ukraine increased by 1.1% y-o-y to 18.7 bcm in 2023, including 13.9 bcm extracted by Naftogaz (+5.1%) and 1.1 bcm by its majority-owned subsidiary Ukrnafta (+5.8%). Private operators cut gas production by 14% y-o-y to 3.7 bcm.