Steel sector recovering after sharp slump, IKEA and Coca-Cola eager to invest in Ukraine, Aerosvit stake up for sale, but real estate transactions down 18 percent
Steel sector recovering after sharp slump
Ukraine’s steel sector, the country’s largest source of hard currency, appears to be staging a recovery after production plummeted late last year, recent state figures and reports suggest.
In a Feb. 11 note to investors, the Kyiv offices of investment bank Galt & Taggart, said signs of a rebound detected in January were based on a number of factors, including weak currencies in the former Soviet Union, reduced iron ore stockpiles, and rising steel prices. “Iron ore prices have risen over 30 percent from three-year lows as global giants including Rio Tinto and BHP Billiton begin setting prices for annual supply contracts with Asian steel producers. Ore imports into China were up 6 percent in December, signaling that the steel cycle’s destocking stage could be nearly complete and steel sales could begin recovering,” Galt & Taggart said.
“The Baltic Dry Index, which assesses shipping costs for commodities, grew strongly on demand to haul iron ore, central in the steelmaking process. After a May 2008 peak, the index dropped some 95 percent, but began recovering from deep lows in January, and more than doubled to just below 1500 at the beginning of February,” the investment bank added.
Figures show that Ukrainian mills increased crude steel production in January by 5 percent month-on-month to 2.1 million tons, but remained down 41 percent year-on-year.
Serhiy Hayda, a steel analyst at Dragon Capital, said: “We expect steel output to increase by another 5 percent month-on-month to 2.2 million tons in February and reach 6.5 million tons in the first quarter of 2009. For the full year, we forecast output of 30.5 million tons, an 18 percent reduction year-on-year.”
Despite sharp decline in demand that triggered many of Ukraine’s mills to grind toward a halt late last year, the country held on in 2008 retaining its claim as one of the world’s top steel producing economies. According to the World Steel Association, Ukraine retained the title of world’s 8th largest steel producer in 2008, churning out 37 million tons, down 13.4 percent year-on-year. Ukraine trails China, Japan, the United States, Russia, India, South Korea and Germany.
Investment bank Foyil took note of the potential for a rebound but expressed doubt on whether it could be sustainable during a painful recession expected this year. “The recently released January numbers of crippled Ukrainian steelmakers firmly indicate the passing of November’s dreadful production trough,” Foyil said in a report this month.
“The fundamental drive behind this growth is renewed interest in cheap Ukrainian finished and semi-finished products on export markets. However, it is difficult to say if this renewed demand is sustainable. Overall, we feel that the suppressed demand and ongoing credit crunch should force domestic steelmakers to maintain subdued production volumes over the first half of 2009, although these numbers will still be higher than the fourth quarter of 2008 output,” Foyil added.
In other positive news for Ukraine’s metallurgical sector, Nikopol Ferroalloy Plant, controlled by billionaire Victor Pinchuk along with the so-called Privat group, announced it had restarted three smelting furnaces amid re-emerging demand.
Despite all the gloomy news in recent months, there are signs that Ukraine’s industrialists remain cash rich enough to sustain a recession, with pockets deep enough to invest into modernization and expansion. Industrial Union of Donbass, one of the country’s largest steel groups, revealed plans to build a brand new ferroalloy plant on the site of a manganese ore deposit in Zaporizhya Oblast that the group owns.
IKEA eager to invest $2.5 billion into Ukraine
Swedish retail giant IKEA is still interested in entering Ukraine and, if conditions are favorable, the company could invest around $2.5 billion into the local real estate market, Oksana Belaychuk, the company’s public relations head for Russia and the CIS, told Interfax news agency.
“Our company is still interested in entering the Ukrainian market. With a favorable turnout of events, IKEA’s total investment packet in Ukraine could come to around $2.5 billion,” she said.
IKEA’s expansion plans for Ukraine – namely the development of shopping malls and IKEA furniture stores – have in recent years faced repeated delays linked to land rights issues and red tape. Belaychuk said that the company was still eyeing expansion with top priority given to major cities including Kyiv, Kharkiv, Dnipropetrovsk, Odesa, Donetsk and Lviv.
IKEA, which has expanded aggressively into Russia where it has several shopping malls already open despite headaches and delays, first announced plans to enter Ukraine in 2005. But land allocation problems have repeatedly delayed these plans.
State stake in Aerosvit to be privatized
Ukraine’s State Property Fund announced the impending sale of a 22.39 percent stake in leading airline Aerosvit, with preference going to current shareholders including Gilward Investments (currently 38 percent) and Genaviainvest (24.9 percent), controlled by Ukrainian billionaire Victor Pinchuk, investment bank Galt & Taggart reported on Feb. 13.
The nominal price of the stake – 96,830 shares at a price of Hr 4.336 million ($ 0.53 million) – could increase Pinchuk’s stake up to 32.11 percent, the Kommersant daily reported. The value of the fund’s stake was not disclosed, but the newspaper reported that it could be worth Hr 150 million in total.
Established in 1994 as a venture between the state and private investors, Aerosvit is one of Ukraine’s top two passenger airlines, competing mostly with Ukraine International Airlines, itself majority state-owned. Aerosvit’s fleet of 14 Boeing 737s and three 767s handled about 25 million passengers and 30,000 flights in 2008.
Coca-Cola could buy Vinnifruit juice group
Delo business daily reported on Feb. 9 that Coca-Cola, the world’s largest beverage company, is close to finalizing the purchase of Vinnytsia-based juice and non-alcoholic beverage producer Vinnifruit. According to the report, Vinnifruit’s majority shareholders seek to sell their 80 percent stake to Coca-Cola, which has in recent years beefed up its presence in Ukraine.
Coca-Cola is eyeing Vinnifruit after its top competitor, PepsiCo, purchased the Odessa-based Sandora juice producer in 2007 for more than $600 million. Coca-Cola produces soft drinks at a Kyiv Oblast facility.
By acquiring Vinnifruit, the group would get its own domestic juice production business in this vast 46 million-person market.
It remains unclear how much Coca-Cola may pay for Vinnifruit, a company which has about $21 million in debts.
Real estate transactions down 18 percent in 2008
Ukraine’s Justice Ministry announced this month that 303,145 real estate transactions were officially registered in 2008, an 18 percent decline from the previous year.
Justice Minister Mykola Onishchuk told journalists that Kyiv, the country’s capital city, was the only region that posted an increase in real estate transactions last year. He said 20,876 deals, mostly apartment sales, were registered in Kyiv last year, or 6.5 percent more than in 2007.
In addition, he said that 497 land plots outside of major cities with homes on them were sold last year, a 28 percent increase compared to 2007. However, he stressed that all transactions are generally inching downwards after a decade of sharp double-digit growth. According to Onishchuk, residential real estate transactions last year in Donetsk totaled 39,601, 27,831 in Dnipropetrovsk, 24,454 in Kharkiv, 19,224 in Luhansk, 4,132 in Chernivtsi, 4,322 in Ternopil, 4,728 in Zakarpattya, 5,035 in Ivano-Frankivsk and 2,946 in Sevastopol. In a Feb. 10 report, investment bank Renaissance Capital took note of an overall decline in the real estate market affecting both commercial and residential segments.
The bank said: “The reported drop reflects the overall economic slowdown and deterioration of earnings due to hryvnia devaluation. This is likely to reflect in lower property valuations in the short term.”
