Overview of the railway market in Russia as of November 2014
The transportation volume has slightly decreased. The turnover growth has kept up growing
In November 2014 the transportation volume decreased by 0.4% year-on-year and amounted to 103.1 million tons.
By November 2014, construction materials transportation has decreased by 21.6%, iron ore — 1.1%, cement — 16.7%, non-ferrous ores — 6.3%, ferrous steel scrap — 6.7%. For the rest of freights there was transportation increase: coal (+2.9%), petroleum and petroleum products (+3.3%), ferrous metals (+8.9%), timber (+11.1%), grain and grain mill products (+16.7%).
In November 2014 the turnover totaled 195.4 billion ton-km. It grew by 3.4% year-on-year, and by 5.2% year-to-date.
Against the background of the devaluation of the ruble, exporters of raw materials were boosting their transportation volumes. In 2015 this trend may remain until there is an expected price balance in the world market.
Russian Railways cut its forecast of transportation volume in 2014. The forecast for 2015 is more optimistic. According to the monopoly, at the end of 2014 the transportation volume may be reduced by 2%, and it may grow by 1.1% in 2015. Earlier Russian Railways predicted the transportation decrease in the range of 1.4-1.8% at the end of the year, and the transportation growth by less than 1% for 2015.
Construction materials: further transportation decline is expected due to the slowdown in housing construction
In November 2014, the construction materials transportation volumes at the network of Russian Railways totaled 9.8 million tons. The freight turnover decreasing has been by 21.6% year-on-year. 131.9 million tons of construction materials have been delivered by rail since the beginning of the year, which is 17.8% less than in 2013.
In the midterm, the precarious economic situation will keep construction materials transportation at a low level. The projects of the federal level may become a potential growth driver for construction materials consumption. However, the recovery of strong demand should not be expected earlier than in 2016.
Cement: traffic volume reached its floor in the past decade
The cement transportation volumes at the network of Russian Railways totaled 2.0 million tons in November. The freight turnover has decreased by 16.7% year-on-year. 30.5 million tons of cement have been delivered by rail since the beginning of the year, which is by 6.7% less than in 2013.
The dynamics of cement transportation follows the dynamics of construction materials transportation.
Coal: export freight traffic keeps boosting
In November, the coal transportation volumes at the network of Russian Railways totaled 28.5 million tons (+2.9% compared to November 2013). 286.5 million tons of coal have been delivered by rail since the beginning of the year (+1.6% % year-on-year).
Dollar net cost of Russian coal has dropped significantly due to the devaluation of the ruble. At the same time, coal producers’ costs have run out of time to respond to the cost increase of loan fund capital. As a result, coal producers can break into the world market with a cheaper offer, putting competitive pressure on Australian and Indonesian producers.
Ukraine, ranking the fifth largest consumer of Russian coal, is planning to increase further procurements. Ukraine needs about 10-12 million tons of coal until the end of the heating season.
In the midterm, they make forecast for growing of coal transportation by rail.
Petroleum and petroleum products: transportation keeps growing
In November, the petroleum and petroleum products transportation volumes at the network of Russian Railways totaled 22.0 million tons (+3.3% compared to November 2013). Transportation has been steadily increasing since the beginning of 2014; 233.7 million tons have been delivered by rail (+2.8% year-on-year).
Despite the devaluation of the ruble & due to a slump in oil, marginality of exporting companies has increased insignificantly. Therefore, petroleum and petroleum products exports decreased in November by 2.4%.
Ore mineral: transportation volumes are still less year-on-year
In November, the ore transportation volumes amounted to 9.2 million tons, which is 1.1% less year-on-year. Since the beginning of the year, 99.7 million tons of ore have been delivered by rail, which is 2.0% less than in January-November 2013.
Versus the previous month, the structure of transportation changed in November. Thus, domestic transportation decreased by 4.1%, export transportation — by 0.7%, while import transportation increased by 6.8%.
Russian companies such as Magnitogorsk Iron and Steel Company, Serov Ferro-alloy Plant, Chelyabinsk Metallurgical Plant went on increasing consumption of Kazakhstan raw materials, which resulted in ore import increase.
Iron ore prices fell by 10% in the world market in November due to oversupply. Month-on-month reduced ore consumption by Turkey (-44%) was compensated by supply increase to the UK (+175%), China (+17%) and initiate deliveries to Italy.
The weakening of the ruble will enable Russian producers to strengthen their competitive positions in the global market, challenging foreign companies with a higher dollar net cost. The shipments increase of ore from Russia is expected in the medium term.
Ferrous metals: export deliveries have risen
In November, ferrous metals loading at the network of Russian Railways was 6.1 million tons that is +8.9% year-on-year. From January to November, 65.4 million tons of ferrous metals have been shipped (+2.2% compared to January-November 2013).
Export shipments of ferrous metals rose by 4.2% month-on-month, while domestic transportation decreased by 8.8%. Deliveries to Taiwan (+23%), the US (+26%) and Germany (+91%) have grown.
Steelmakers are striving to maximize their revenue by growth of export shipments and bringing domestic prices to conformity with theexport ones. Ferrous metals manufacturers declared their intention to raise prices by 35% in the domestic market in 2015. Such a measure would increase further exports and reduce domestic transportation.
Grain: transportation growth continues due to the record harvest
In November, transportation volumes of grain and grain mill products at the network of Russian Railways totaled 2.1 million tons (+17% compared to November 2013). 16.2 tons of grain have been shipped by rail from January to November (+33.9% compared to January-November 2013).
Summarizing the results of November 2014, about 70% of this year's harvest made for export have already been sent abroad. This created a threat to grain domestic shortages in the country. In response, the government imposed restrictions on further grain exports. Such a step is predicted to have a positive impact on the level of domestic prices, but will have a negative impact on the traffic volume.
Mineral fertilizers: transportation level remains high
In November, mineral fertilizers transportation volumes at the network of Russian Railways has reached the level of the previous year and amounted to 4.0 million tons. 45.1 million tons have been shipped since the beginning of the year (+5.9% year-on-year).
Within the last three months, according to the different estimates, fertilizer prices have increased by the range of 20% to 50% due to a strict peg to the dollar. Fertilizer producers have made up their mind to encourage the agricultural sector in a difficult economic situation and have offered a 10-15% discount for Russian consumers.
In the medium term, they forecast the traffic maintaining at the currently high level.
Car-building works are reducing the production of old generation cars
The data on the rolling stock sales by plants of the CIS are taken from the magazine “Rolling stock market”.
In November car-building works of the CIS have sold 4.1 thousand cars (-18% month-on-month), 60.8 thousand cars since the beginning of the year (-24.7% year-on-year).
In November 2014, the sales of innovative rolling stock has still been growing: in comparison to November 2013 the share of railcars fitted with bogies (25 tf) has increased up to 40% in the total sales.
At that, the sales of gondolas with high load capacity for the first time surpassed the production of cars fitted with model 18-100 bogies.
In December, some manufacturers announced production cutback in 2015, in particular due to the price boost for metal. Therefore, "Bryansk Machine Building Plant" (BMZ) will suspend the production of shunting diesel locomotives and freight cars in January. In this regard, some part of the BMZ staff is going to be placed on paid administrative leave in the beginning of 2015.
Rental rates growth goes on following the decline in serviceable rolling stock
In November, the inoperative rolling stock at the network kept growing from 114.9 to 115.4 thousand cars, 53 thousand of which are gondolas.
Further reduction of gondolas accessible for transportation utilization as well as seasonal transportation increase had a positive impact on the level of operating profitability of this type of rolling stock. In November, the rental rate of gondolas (fitted with 18-100 bogies) was about 550-600 rub/day.
Rental rates stabilization may be observed in other segments of the rolling stock (fitted with 18-100 bogies). For example, the rental rate of oil and gasoline tanks remain at the level of 750-850 rub/day, grain hoppers — 900 rub/day, mineral hoppers — 850 rub/day.The transportation volume has slightly decreased. The turnover growth has kept up growing.
Leysana Korobeynikova, Senior Analyst
