State Statistics for Jan-Sep 2012: Industrial Output Down 1.2%, Steel -4.1%, Coal +5.3%

Kyiv, October 17, 2012. The figures presented today by the State Statistics Service are more than just dry reporting. They are a detailed picture of the illness of Ukrainian industry, which is entering the final quarter of the year with a fever. The overall 1.2% decline in output over nine months is like the average temperature in a hospital. Behind it lies a severe fever in entire industrial workshops and only localized warmth in boiler rooms. While metallurgy and engineering are freezing, the energy sector is forced to stoke the boilers, trying to warm a freezing economy. These figures highlight the deepening structural weaknesses in Ukraine’s export-oriented economy, raising concerns among international investors about the country’s growth prospects. Let’s examine the State Statistics Committee’s figures in more detail.

Manufacturing Sector: Not a Slowdown, But a Collapse of Key Industries

Looking at the figures bluntly, the picture in processing industries is close to critical. This is not a cyclical slowdown but signs of a systemic crisis.

• Steel production fell by 4.1%, rolled product output by 4.8%. And in September, according to the State Statistics Service, metallurgists collapsed by 9.4% year-on-year. The figures scream that world markets for our metal are closing, and there is simply no domestic demand capable of absorbing it.
• The situation in engineering is downright catastrophic: a 20.1% contraction in September is not a statistical error. It is an indicator that investment in fixed capital in the country is frozen, and the export of machinery or equipment has long been uncompetitive.
• Chemicals are split in two. While ammonia and hydrocarbon production is declining, the fertilizer segment shows modest growth of 2.6%. This is the same “agricultural cushion” that still keeps part of the industry afloat but cannot pull the entire economy.
• The collapse in oil refining by 29.4% in September is a separate alarm bell. It speaks either of serious logistical and raw material problems or a collapse of domestic demand.

The overall conclusion is bleak: the growth model tied to the export of raw materials and semi-finished products (metal, chemicals) has failed. And creating a new one based on deep processing and engineering has not been possible. The result is deindustrialization in real-time on statistical reports.

Energy and Extraction: Growth Out of Desperation

The paradox of today’s statistics is that positive figures sound almost as ominous as negative ones. Growth in energy is not a driver but a symptom of illness.

• Coal mining increased by 5.3% not because metallurgists or chemists crave it. Thermal power plants burn it in an attempt to replace unaffordable imported gas. This is not an economic success but a forced survival measure.
• Similarly, a 3.4% growth in electricity generation against the backdrop of falling industrial consumption raises uncomfortable questions about the efficiency of this generation and the state of the grids. Where do these gigawatts go if factories are shutting down?
• The chronic 0.3% decline in gas production only worsens the picture of dependence. The country’s energy security still hangs on a precarious balance between domestic coal and foreign gas.

Thus, the energy “island of growth” turns out to be a fortress defended at enormous cost while the rest of the economic territory declines. This is not development but costly maintenance of the status quo.

September Collapse: Has the Point of No Return Been Passed?

The data for September deserves special attention — an overall decline of 7%. This is not just a “deterioration of indicators.” It is a signal that the decline has entered a new, steeper trajectory. When metallurgy, engineering, and oil refining fall simultaneously, we are no longer talking about sectoral problems but a synchronous contraction of economic activity. Business is not just reducing output — it is preparing for a difficult winter by mothballing capacity.

What Awaits the Economy in Q4?

The forecast based on this data cannot be optimistic. The fourth quarter is traditionally the most costly due to the heating season. The energy sector, already operating under strain, will receive an additional load, which could lead to tariff increases or disruptions. Falling exports will put pressure on the hryvnia exchange rate and foreign currency reserves. And the state budget, whose revenues depend on the profits of steel and chemical giants, may face unexpected cash gaps.

Ukrainian industry approaches the threshold of 2013 weakened and with no clear drivers for growth. The only chance to stop the slide into a deeper crisis is not hope for a sudden rise in steel prices, but long-overdue structural reforms that will reduce the cost of energy for business and create conditions for modernization. For now, the statistics record not just a decline, but the beginning of a painful restructuring of the country’s entire industrial model.

Reference:

• Exchange rate as of 17.10.2012: ~1 EUR ≈ 10.40 UAH (~1 USD ≈ 8.05 UAH).
• Sources of statistical data: RBC-Ukraine, State Statistics Service of Ukraine.