The transportation volume has kept up growing against the slowing down of freight turnover growth.
In October 2014, the transportation volume totaled 107.6 million tons; therewith year-on-year growth was 1.6%, which is largely due to "low base effect" in October 2013.
Compared to October 2013 construction materials transportation has decreased by 18.4%, cement — by 6.9% and non-ferrous ores — by 5.9%. For the rest of freights there was transportation increase: coal (+7.2%), petroleum and petroleum products (+6.6%), ferrous metals (+3.4%), ferrous steel scrap (+6.3%), coke (+22.2%) and grain (+27.8%).
New Russia’s export logistics is stabilizing taking into account macroeconomic factors. In October 2014, the turnover amounted to 195.4 billion ton-km, but its growth rate slowed down up to 2.3% in comparison to October 2013. In September 2014, the turnover growth was +7.7% compared to September 2013.
As Russian Railways stated, it expected the transportation volume decrease by 2% at the end of 2014 and its growth by 1.1% in 2015. Previously Russian Railways expected the transportation volume decrease by 1.4-1.8% at the end of 2014 and its growth by less than 1% in 2015.
Construction materials: transportation is still less year-on-year, but the rate of decline is gradually decelerating
In October, the construction materials transportation volumes at the network of Russian Railways totaled 12.4 million tons. At the same time, the rate of decline compared to the previous year lessened by 18.4% against the decrease of 20.7% in September 2014. 122.1 million tons of construction materials have been delivered by rail since the beginning of the year; it is 17.5% less year-on-year.
However, in October 2014 the demand for construction materials fortified its position in Samara (+24%), Volgograd (+31%) and Amur (+64%) regions.
The construction of the stadium (at the cost of 13.4 billion rubles) started in Samara as part of the preparation for the FIFA World Cup-2018. Apart of the stadium, a cycle racetrack, ice rinks, a swimming pool and a science city "Gagarin center" are supposed to be built. Building and construction works will be carried out in winter as well, and it will help to maintain consistent freight transportation of necessary construction materials until 2018.
The largest investment project of the construction of mining and processing plant at the cost of more than 143 billion rubles is implemented in Kotelnikovo district of Volgograd region. The population of Kotelnikovo is predicted to start increasing significantly after putting the plant into operation, and this should result in housing development growth and social infrastructure development. The project implementation of the cement plant construction to the value of 10.4 billion rubles will serve an additional factor for the growth of construction materials transportation in Volgograd region.
In Amur region, the construction of the Cosmodrome Vostochny ("Eastern Spaceport") at the cost of 300 billion rubles is coming to the end. The work at the launching site project is 70% completed. Besides, next year the construction of three road infrastructure facilities (bridges across three rivers: Amur, Zeya and Selemdzha) is planned in Amur region. The bridge across the Amur River will become the template for the Export Processing Zone (EPZ) creation in the Northeast China province near the cities of Blagoveshchensk and Heihe. There are plans in creating of agroindustrial and timber-processing complexes on this territory (volume of investment will amount to more than 29 billion rubles).
Before the year is out, the year-on-year retardation in construction materials transportation will diminish due to the low base effect of 2013 year-end: decline in construction materials transportation began in October and November 2013.
Coal: export freight traffic keeps growing
In October, the coal transportation at the network of Russian Railways totaled 28.4 million tons (+7.2% compared to October 2013). 258 million tons of coal have been delivered by rail since the beginning of the year (+1.5% year-on-year).
Export and domestic coal transportation continues rising (+5.1% and +5.3% in comparison with October 2013.). At that, the growth rate of export freight transportation has been slowing down for the last three months. In summer the increment of growth year-on-year was about 10%, what means the gradual recovery of coal transportation to a well-balanced level. In the absence of major changes in the macroeconomic situation, transportation level will remain stable in the midterm.
However, the reduction of China's export duties up to 3% planned from January 1, 2015 may destabilize the situation. Chinese export taxes were imposed in August 2008 to preserve the strategic resources of coal and ensure domestic consumption. Currently, the export duties are at the level of 10%. After China’s introduction of import duties in September 2014, we can see an increased competition in the Asia-Pacific Region market among the countries producing coal as well as the increase of coal surplus in the world market.
The possible Japan's GDP runoff may also result in transportation volume changes. The GDP in Japan has fallen by 1.6% from July to September, while earlier they had expected the GDP growth by 2% for this quarter of the year. Today Japan is the main consumer of Russian coal, so the GDP decline could result in a substantial drop in demand for Russian energy sources.
In October, energy-generating companies and housing and utility services built up demand for coal. Since the beginning of the heating season, in Russia power consumption has increased by 3.2% year on year, which confirms the forecasts of the Hydrometcentre about colder weather compared to the previous year.
Petroleum and petroleum products: the government supports oil companies - transportation volumes are getting bigger
In October, the petroleum and petroleum products transportation volumes at the network of Russian Railways totaled 21.1 million tons (+6.6% compared to October 2013). Since the beginning of the year, the transportation volumes have been steadily increasing, and 211.7 million tons have been delivered by rail (+2.7% year-on-year).
In October, the main growth driver for petroleum and petroleum products transportation was export (+7% compared to October 2013). The domestic traffic also went on growing (+3% year-on-year).
There is a plan for decreasing Russia’s export duties on petroleum products on December 1, 2014. Thus, the duty on gasoline will be set be in the amount of $249.7 against $285 per ton in October, diesel fuel oil duty will be $180.3 per ton (October - $205.8). Duty on other petroleum products will be $183.1 against $209 per ton last month.
The reduction of export duties will help Russian companies to enter the European market with lower fee proposal. 97% of export railway shipments of this commodity falls at petroleum products, that is why exports volume will remain high.
A swap scheme that Federal Antimonopoly Service of the Russian Federation sent to the Russian government may become another factor in the growth of petroleum transportation. It is based on the idea to "exchange" petroleum products which are in surplus supply in the domestic market to the deficient quality refinery-produced fuel (owned by both Russian and foreign companies). In the midterm, if the quality of the fuel becomes the same at all oil refineries in Russia, such an exchange may be implemented between the refinery plants on a territorial basis, which will significantly reduce the volume of domestic traffic.
Another reason for the growth of petroleum and petroleum products transportation by railway may become the Transneft offer to deliver high-sulfur crude oil as split flow line to the terminal at the port of Ust-Luga. Earlier high-sulfur crude oil and sweet crude usually were mixed in a tube in different proportions depending on delivery destination, and on the way out such high-sulfur crude oil came on export, giving up in price and in quality to benchmark crude.
In the short term, transportation of crude oil and petroleum products will remain at a high level.
Ore mineral: Russian companies continue leaving the Chinese market
In October, the ore transportation volume amounted to 9.7 million tons and reached the level of the previous year. Since the beginning of the year, 90.5 million tons of ore have been delivered by rail, which is 2.1% less than in January-October 2013.
Export deliveries kept declining, but the decline rate has decelerated compared to previous year (-12.1% in October against -18.4% in September). At the same time as the export transportation volume is decreasing, the domestic transportation is growing (+2.1% compared to October 2013).
In October, exports to China were 40% less year-on-year and 4% less than in September 2014. Russian suppliers’ price competition loss in the Chinese market is still the main reason for the decline of ore mineral exports.
Metallurgical raw materials are sold at the lowest since 2009 prices. The reason for this is an offer glut in the market after the rapid increase of production capacities in Australia and Brazil. According to Goldman Sachs, ore excess supply will reach 60 million tons on the world market by the end of the year and it will rise up to 110 million tons in 2015. The recovery of price may take up to 18 months, by Anglo American Plc. estimate. In the short term, raw materials are likely to be sold at the price of $75-80 per ton. Experts mention the price of $90 as the maximum price guidepost.
Russian companies continue increasing deliveries to other countries. Therefore, the iron ore exports to Turkey has doubled year-on-year and reached its historical peak for the recent few years. Thus, today Turkey has become the second largest consumer of Russian ore mineral supplies after China. In addition, there is exports growth in countries such as Ukraine (+102%), Slovakia (+42%) and the Czech Republic (+13%) in comparison to the previous month. In October, after an import decline of Russian raw materials in September, Japan resumed its iron ore supplies from Russia.
The increase in domestic iron ore shipments can be explained by the fact that the price fall for ferrous metals was slower than the price fall for raw materials for their production.
Although Russian companies give way to Brazilian and Australian suppliers at the Asian market, but they have an obvious advantage in the European market that they have received thanks to the low cost of raw materials delivery. Therefore, the exit of Russian companies from the Chinese market acted as a catalyst for consolidation of the new structure in export logistics, and we may speak of the possible recovery of transportation volume in the medium term.
Ferrous metals: the fall in raw material prices helped to keep high transportation volumes
In October, ferrous metals transportation volume at the network of Russian Railways was 6.0 million tons that is 3.4% year-on-year. From January to October, 59.3 million tons of ferrous metals have been shipped (+1.5% compared to January-October 2013).
Ferrous metal prices continued their gradual decline. From the beginning of the year, indication of iron reinforcement price has lost 9.3%, hot-rolled sheet price — 10.2%, while the iron ore price has lost even more. It may have a positive effect on the profit of iron and steel companies.
In October, the main growth driver in steel products exports was the delivery expansion to Turkey (+33% to the previous month). Due to the heavy price drop for rolled metal products, Russian steelworkers managed to reassert themselves at this market, pressing Chinese manufacturers. Contracts for the hot-rolled coil delivery from the CIS to Turkey were concluded at $25-35 less cost per ton than the price indications of the previous month. However, such situation cannot last forever, Turkish steelmakers have already asked the government of the country to increase import duties on hot-rolled and cold-rolled coils from the CIS and China.
Grain: transportation growth continues due to the record harvest
In October, transportation voulme of grain and grain mill products at the network of Russian Railways totaled 2.3 million tons (+ 28% compared to October 2013.). 14.1 million tons have been shipped by rail from January to October (+36.9% year-on-year).
The International Grains Council has once again raised its forecast for grain harvest in Russia this year. According to October reports of the Council, the harvest will run at 100.8 million tons. In September, the forecast was 100.6 million tons, in August — 98.1 million tons. At the same time, the export forecast revised down from 29.7 million tons in September to 29.1 million tons in October. Before that exports forecast has been steadily increasing for some months. Imports assessment remained unchanged and amounted to 0.8 million tons.
By the end of October, Russia sowed winter crops at the area of 16.4 million hectares, which is 99.4% according to plan and 14.9% higher than a year before.
Difficulties in grain transportation from the United States gave to Russia an option of coming into traditional American markets (Mexico, Indonesia, and the Philippines). The system of railway transshipment in the United States lack the handling capacity: it cannot cope with the increased traffic flow under conditions of a second straight record corn harvest and excess grain stock in the domestic market. This situation has resulted in railway tariff increase. As a result, some US producers suspended deliveries of grain to the world market and sent it to the storage. However, the profit of the Black Sea grain for Russia, Ukraine and Kazakhstan will be relative, because this season in general the grain proposal is high on the world market.
Fertilizers: transportation level remains high
In October, mineral fertilizers transportation volume at the network of Russian Railways has reached the level of the previous year and amounted to 3.9 million tons. 41.1 million tons have been shipped since the beginning of the year (+6.5% year-on-year).
Despite the fact that transportation volume is year-on-year, the traffic structure has undergone serious changes. Export shipments decreased by 5.1% compared to October 2013, and domestic transportation increased by 18%.
China (+2% to September), Thailand (+7%) and Germany (+46%) went on increasing Russian fertilizer consumption. Imports decrease to Brazil (-17%), Ukraine (-30%), the USA (-16%) is quite telling.
There was an accident at the mine Solikamsk-2 (owned by Uralkali) in November. According to experts’ estimates, the accident will not have a significant impact on the world potassium market. Uralkali may cut down exports by 2 million tons (3% of global demand), and other manufacturers will make it up easily.
In the midterm, fertilizer transportation will remain at the same level. The launch of new production capacities in Russian Federation in 2017 may change the situation.
Innovative rolling stock is still increasing its share in the structure of the CIS works implementation
The data on the rolling stock sales by plants of the CIS are taken from the magazine “Rolling Stock Market”.
In October, car-building works of CIS have sold 5.0 thousand cars (-34% compared to October 2013), and 56.7 thousand cars as a whole since the beginning of the year (-14.2% year-on-year). It should be noted that hopper car production has decreased from 560 pcs in September 2014 to 200 pcs in October.
In October 2014, the sales exposure of innovative rolling stock is still growing: in comparison with October 2013 the share of railcars fitted with bogie (25 tf) has increased up to 28.3% in the total sales.
Rental rates are still growing
In October, the inoperative rolling stock at the network kept growing up to 115 thousand cars, whereof 56 thousand cars are gondolas. Such a reduction of gondola rolling stock accessible for transportation usage as well as seasonal transportation increase had a positive impact on the level of operating profitability of this type of rolling stock. In October, the rental rate of gondolas (bogie 18-100) was about 550 rub/day.
Due to the growth of the inoperative rolling stock, there is the same situation in other segments of the rolling stock. For example, the rental rate of oil and gasoline tanks (bogie 18-100) increased up to 750-850 rub/day, grain hoppers (bogie 18-100) — 900 rub/day, mineral hoppers (bogie 18-100) — 850 rub/day.
Leysana Korobeynikova, Senior Analyst