Crude steel production in Ukraine totaled 5.7 Mt in 11M23, down 7.3% y-o-y, with finished and semi-finished steel output falling 7.2% y-o-y to 4.9 Mt and hot metal production down 11% to 5.4 Mt.

Hryvnia-denominated deposits at Ukrainian banks rose by 3.6% m-o-m to UAH 1,500bn in November (+35% y-o-y), accelerating from 0.6% growth in October. F/X deposits dipped by 0.3% m-o-m to $18.9bn (+12% y-o-y) after rising by 2.4% m-o-m the month before.

Ukrenergo has attracted a EUR 150m state-guaranteed loan from the EBRD to cover its critical operating costs and finance measures to enhance domestic energy security and stabilize the electricity market.

Russian forces made more visible, albeit still minor, battlefield gains last week after intensifying their assaults along both the eastern and southern fronts. The Russian army still appears far from being able to exploit its recent small territorial advances to achieve more than localized tactical-level gains, yet its offensive does not yet look to be culminating. With current deliveries of US military aid to Ukraine remaining reduced due to congressional approval of a new assistance package still being delayed (now to at least mid-January), Russian forces are attempting to taking advantage of their numerical superiority and Ukraine’s apparent ammunition shortages to expand their offensives. For an analysis of near-term battlefield prospects and possible longer-term developments, please see our note Russia’s War on Ukraine: Bracing for a Defensive 2024 and Strategic Challenges published on Dec. 13.

EU leaders agreed to open accession talks with Ukraine at a summit on Thursday, overcoming Hungary’s opposition. According to media reports, Hungarian Prime Minister Viktor Orban, urged by German Chancellor Olaf Scholz, left the meeting room before the decision was voted on, a move called “constructive abstention”, thereby enabling the other 26 EU country leaders to vote unanimously as required by EU rules. EU leaders also approved the start of accession talks with Moldova and granted EU candidate status to Georgia.

The NBU cut its key rate by 100bp to 15% p.a. yesterday, in line with its latest forward guidance. This year’s cumulative rate cut thus totaled 1,000bp, including -400bp in October to reflect the central bank’s shift to the “lower bound” operational design. Other rates were lowered accordingly, with the rate on overnight certificates of deposit (CD) set at 15%, that on 3-month CDs at 19%, and the refinancing rate at 21%.

The State Customs Service reported a merchandise trade deficit of $2.0bn for November, down from $3.0bn in October as imports fell by 8.9% m-o-m to $5.1bn (-3.7% y-o-y) while exports jumped by 18% m-o-m to $3.2bn (-17% y-o-y). In 11M23, the merchandise trade gap totaled $24.3bn, widening sharply from $8.8bn in 11M22 as exports shrank by 19% y-o-y to $33bn and imports rose by 16% y-o-y to $57bn.

Ukraine’s iron ore exports jumped by 28% m-o-m to 2.0 Mt in November (+151% y-o-y), bringing 11M23 exports to 16.1 Mt (-30% y-o-y). In value terms, iron ore exports rose 6.2% m-o-m to $155m (+114% y-o-y), remaining 43% lower y-o-y at $1.6bn in 11M23.

Ukraine is set to enter 2024 facing heightened military challenges. The counteroffensive Ukrainian forces began in June has made only minor territorial gains and effectively ended. The current drop in Western (notably US) assistance and Ukraine’s still small domestic weapons production base are putting Ukrainian forces back on the defensive.

According to a monthly survey conducted by the Ukrainian Institute for Economic Research (IER), the percentage of manufacturing enterprises operating at a capacity load of 75%+ inched down by 1pp m-o-m to 58% in November, while the share of idle enterprises remained unchanged at 3%. In line with previous surveys, input cost growth remained the major obstacle to business activity but the share of companies mentioning it dropped further to 41%, from 48% in October and a high of 70% between September 2022 and May 2023. Security concerns increased last month, mentioned by 38% of firms vs. 32% in October, thus becoming the second major impediment, with logistical constraints third (cited by 36% of respondents, up from 31% in October). Other major obstacles included demand weakness, power outages, labor shortages, and supply chain disruptions.

LSE-listed MHP, Ukraine’s largest poultry producer, yesterday announced a second tender offer to purchase for cash any and all of its outstanding $349m Eurobonds maturing on May 10, 2024. The repurchase price was set at 95% of par before Jan. 4, 2024, and 85% before Jan. 19, 2024. All repurchased notes will be canceled.

Ukrainian Railways (RAILUA) CEO Yevhen Liashchenko said the company would increase 2023 revenue to UAH 99.6bn ($2.7bn based on our 2023 average exchange rate forecast of UAH 36.6:USD), up 32% y-o-y and including UAH 82.1bn from the cargo business and UAH 8.4bn from the passenger segment. He estimated 2023 net income at UAH 7bn ($191m), up from a net loss of UAH 9.6bn in 2022.

The IMF Board approved the second review of its $15.6bn 4-year EFF program for Ukraine and authorized disbursement of a $0.9bn budget support loan, the third tranche under the program. The Board also concluded Article IV consultations with Ukraine.

According to provisional data from the State Statistic Service (SSS), real GDP increased by 9.3% y-o-y in 3Q23, slowing from 19.5% growth in 2Q23, while the seasonally adjusted tally rose by 0.7% q-o-q on top of 0.8% in 2Q23 and 2.4% in 1Q23.

Ukrainian Infrastructure Minister Oleksandr Kubrakov announced that automotive cargo traffic via Yagodyn-Dorohusk crossing point on the Ukrainian-Polish border resumed on Dec. 11 after a Polish truckers’ strike blocked it on Nov. 6. The blockade was lifted after local Polish authorities in Dorohusk withdrew their permission for the protest.

Fitch affirmed its long-term foreign currency issuer rating on Ukraine at CC, expecting further restructuring of sovereign Eurobonds before the current two-year standstill agreement expires in September 2024. Fitch said Ukrainian authorities planned “a single comprehensive debt restructuring” but did not rule out a further deferral if security-related uncertainty precluded a comprehensive deal. The rating agency said it would view both outcomes as a distressed debt exchange (DDE), leading to a rating downgrade. Fitch also said it could upgrade Ukraine if security risks significantly decreased, lowering the likelihood of commercial debt restructuring.