Russian Ruble, Ukraine’s Hryvnia Climb as Gas Supplies Resume

By Emma O’Brien and Laura Cochrane

Jan. 20 (Bloomberg) -- Russia’s ruble strengthened for the first time in five days against the euro and the Ukrainian hryvnia advanced as OAO Gazprom resumed shipments of natural gas to Europe after a two-week shutdown.

The ruble gained 2.2 percent to 42.6678 per euro by 5 p.m. in Moscow, while the hryvnia appreciated to a one-month high after Russia’s gas exporter said it will ship about 430 billion cubic meters of gas today. Currencies in eastern Europe pared declines.

“The lack of gas was creating a negative dimension for industry,” said Roderick Ngotho, an emerging-markets currency strategist in London at UBS AG. “The resumption of gas means industry can do the best it can given the current downturn in external demand without the added negative of disruptions to energy flow.”

Moscow and Kiev have been locked in a dispute over higher gas prices and alleged siphoning, causing disruption in supplies through Ukraine to countries from Austria to Poland and threatening industry as Hungary and Slovakia imposed limits on energy usage. Ukraine, which had to be rescued with $16.5 billion of loans from the International Monetary Fund, may suffer from the deal as increased gas prices force some companies out of business and worsen the country’s economic slump, according to ING Groep NV.

The hryvnia strengthened as much as 3.6 percent to 10.1471 per euro today, the highest since Dec. 12, and rose 0.7 percent to 8.1300 per dollar. Russia’s currency earlier weakened against the euro and the dollar as the nation’s central bank devalued the ruble for the fifth straight day. The ruble strengthened for the first time in official trading this year against the U.S. currency, advancing 1.2 percent to 32.9928.

Eastern Europe

Hungary’s forint recouped some losses after Gazprom’s statement, and last traded 0.3 percent weaker at 286.33 per euro in Budapest. The Romanian leu fell 0.7 percent, and the Serbian dinar appreciated 0.1 percent to 94.3745 per euro, after earlier declining as much as 0.3 percent.

Disruptions to Serbia forced gas utility Srbijgas to borrow money for alternative imports and led the company to forecast a $270 million loss for the three months through February. Slovakia’s Finance Minister Jan Pociatek said the impasse will probably force the country to cut its economic forecast. ArcelorMittal, the world’s biggest steelmaker, suspended production at its plant in Bosnia because of a “serious reduction” in gas supply.

“The normal operations of companies will be possible now,” said Barbara Nestor, an emerging-markets currency strategist in London for Commerzbank AG. “Big producers of cars and steel in central Europe probably suffered production limitations in early January because of the stoppage in gas supplies.”

EU Threats

Ukraine’s NAK Naftogaz Ukrainy today confirmed gas was flowing into its transit pipes, after signing a 10-year natural gas agreement with Gazprom in Moscow yesterday. Russian gas flows were halted Jan. 7, disrupting supplies to the European Union, after Gazprom accused Ukraine of siphoning off transit flows for its own needs, a charge the country denies.

The dispute showed Russia and Ukraine are “incapable” of delivering on their agreements to provide gas to European Union member states, European Commission President Jose Barroso said last week. He threatened to urge companies in the 27-nation bloc to go to court on the disruption in supplies as factories shut down because of lack of fuel.

Gazprom shares gained as much as 2.5 percent to 108.15 rubles in Moscow trading, after sliding as much as 2.6 percent before the announcement.

Gas Prices

U.K. gas for delivery in February fell 1.5 pence, or 2.6 percent, to 53.5 pence a therm, according to broker Spectron Group Ltd. Russia’s Micex stock index pared a decline of as much as 5.1 percent, dropping 3.3 percent to 567.42.

The extra yield investors demand to own Ukrainian bonds instead of U.S. Treasuries plunged by the most in 10 weeks, falling 1.23 percentage points to a seven-week low of 23.80 percentage points, according to JPMorgan Chase & Co. That compares with a 0.1 percentage point decline in JPMorgan’s main emerging- market bonds index to a week-low of 6.69 percentage points.

Russia has accused Ukraine of siphoning gas since at least 2005, and in August 2006 the nation cut off all Ukrainian gas exports for three days, causing volumes to fall in the EU. Gazprom also cut shipments by 50 percent last March during a spat over debt repayments.

‘10-Year Commitment’

“This is positive because we’ve got a 10-year commitment here,” said Ali Al-Eyd, an emerging markets fixed-income strategist in London at Citigroup Inc. “Near term, if what we’re reading comes to fruition, then we have an improvement on Ukraine’s previous experience with gas pricing.”

Oleksandr Shlapak, first deputy chief of Ukrainian President Viktor Yushchenko’s staff, said today the deal is worse than an offer made by Gazprom at the end of 2008.

The price of gas for Ukraine will be $360 per 1,000 cubic meters in the first three months this year and adjust quarterly next year, when the nation moves to a “European market price,” Gazprom said. Ukraine will have to transit as much as 120 billion cubic meters of Russian gas to Europe this year, and buy 40 billion cubic meters for its own market under the new agreement. Ukraine earlier rejected a price of $250.

Ukraine’s average gas price this year will probably be less than $250 per 1,000 cubic meters, Gazprom’s Deputy Chief Executive Officer, Alexander Medvedev, said on a conference call today.

‘Can-Do Politician’

Russian Prime Minister Vladimir Putin and his counterpart in Ukraine, Yulia Timoshenko, brokered yesterday’s agreement. The accord sidelined Putin’s political foe, Yushchenko, who has pushed for Ukraine to join the E.U. and the North Atlantic Treaty Organization, amid Russian objections.

The parliamentary alliance between Timoshenko and Yushchenko, forged during 2004’s Orange Revolution, collapsed in September after the pair tussled over economic policy and relations with Russia following Moscow’s August invasion of nearby Georgia.

Timoshenko “has emerged as the can-do politician,” said Chris Weafer, chief strategist at UralSib in Moscow.

Russia’s 30-year government dollar bonds fell, pushing the yield 13 basis points higher to 9.51 percent.

Higher demand for rubles by banks also supported the Russian currency today, according to Natalia Orlova, chief economist at Alfa Bank, Russia’s biggest privately owned lender. Banks need to pay as much as 150 billion rubles ($4.5 billion) in value-added tax to the government today, according to Moscow’s Trust Investment Bank. The central bank offered 20 billion rubles at its cash auction yesterday, less than a quarter of as much as 90 billion demanded, said Alfa’s Orlova.

‘Liquidity Squeeze’

“The liquidity squeeze is the main explanation for the strength we’re seeing in the ruble today,” she said. “One of the best way to stop capital outflows is to reduce liquidity and that seems to be what the central bank is doing.”

Bank Rossii has devalued the ruble 19 times since Nov. 11, as it seeks to mitigate the effect of the ruble’s drop on consumer sentiment and the manufacturing sector. Policy makers have drained their foreign-currency reserves by almost 30 percent since August, intervening in the currency on a daily basis. The bank sold as much as $11 billion yesterday, a record one-day sale, according to Trust Investment Bank in Moscow.

To contact the reporters on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net; Laura Cochrane in London at lcochrane3@bloomberg.net