OREANDA-NEWS  On 09 October Ukrainian Ministry of Industrial Policy announced details of a decline in metallurgical output and the start of a production crisis in the industry. About half of all blast furnaces (17 of 36) went out of production. While the amount of finished products in storehouses reached the level of one-month's production. On account of this news the Ministry of Industrial Policy and the largest metallurgy plants will discuss the situation today. We recall that in 9M2008 the output of cast iron decreased by 0.53%, y/y, both steel and rolled steel output fell by 0.98%, y/y.

We consider that the situation needs the support of the government, as any interruption in metallurgical output may hurt domestic economic growth. According to our estimates growth in metallurgy contributed around 60% to growth in manufacturing and around 20% to GDP growth. Any fall of metallurgical production in 4Q2008 will lead to a decrease in metallurgical output by around 3%, y/y in 2008E, which may deteriorate GDP growth by around 60 b.p., changing the forecast of 2008E GDP growth from 6.6% to 6.0%. Therefore, we think that it is essential for the government to consider recovery measures to support metallurgy, such as reducing railway tariffs, provision of tax benefits and provision of subsidies for natural gas purchase.