Transportation volume has exceeded the level of the previous year for the first time over the past 8 months. Freight turnover is going on increasing.
In September, the transportation volume has increased by 0.2% up to the same month of the previous year for the first time since February 2014 and amounted to 104.9 million tons. With the exception of construction materials transportation that was significantly below year-on-year, the total freight transportation has been steadily increasing from July to September 2014 respectively to the same months in 2013.
In comparison with September 2013, construction materials transportation has decreased by 20.7%, iron and manganese ore — by 3.2%, nonferrous metal ores — by 5.6%. However there has been an increase in transportation of the other goods: coal (+ 5.8%), petroleum and petroleum products (+ 3.6%), ferrous metals (+ 5.4%), timber (+ 3.4%), chemical and mineral fertilizers (+ 8.3%), cement (+ 3.2%), grain (+ 17.6%) and coke (10%).
In September, the turnover has been constantly growing and reached 193.0 billion ton-km, which is by 7.7% higher than in 2013.
The Russian Railways are expecting the transportation volume growth up to 2% in October (year-on-year) and the transportation volume decline by 1.0-1.8% in 2015.
Construction materials: transportation is still in decline
In September, the transportation volume of construction materials at the network of Russian Railways totaled 13.0 million tons (-20.7% compared to September 2013). In all 109.7 million tons of construction materials have been delivered by rail since the beginning of the year (-17.4% compared to the previous year).
Despite the general trend in decline of construction materials consumption in Russia, some regions are steadily driving up their demand. Thus, due to the ramp up of road and infrastructure facility construction the materials supplies have increased in Moscow region (+ 13.7%), Republic of Tatarstan (+ 19.7%) and Nizhny Novgorod region (+ 42.8%) in relation to last September.
Until 2017, the Moscow region authorities are planning to invest 77 billion rubles in the construction of 85 transportation facilities. Another 50 facilities are being prepared for competitive tenders on terms of public-private partnership. Furthermore, there are plans in the chain construction of wholesale and distribution centers near Moscow in the next couple of years.
In 2014, Tatarstan allocated 15.4 billion rubles for road building, renovation and maintenance. According to the administration's agenda by the end of 2017, all inhabited localities of Tatarstan with a population of more than 125 people should be provided with access roads. At that in order to reduce the building cost, they are planning to use not asphalt road covering, but chipped surface, so that may cause an increase in railway transportation of road metal into the region.
Nizhny Novgorod region has several branches of road construction. The first one is the construction of an alternate of Borsky bridge with estimated cost of 13 billion rubles (The plan calls for completion of work in 2016.) The second branch is regional road renovation (until today the works have been carried out in area of 800 thousand sq. m. of the roadbed). The third branch is the municipal road renovation (450 million rubles were allocated for in in 2014).
In addition to road projects, Nizhny Novgorod is planning sports facilities re-operation for the FIFA World Cup 2018, and the Russian Government has allocated 17 billion rubles from the budget for their construction.
Before the year is out, the reducing trend in building materials transportation is predicted to remain unchanged in relation to the previous year, but it does not exclude the positive dynamics in specific regions. However, the rate of drawdown is gradually reducing as the decline in construction materials transportation began in September 2013.
Coal: export freight transportation keeps growing, domestic consumption shows seasonal increase
In September, the coal transportation volume at the network of Russian Railways totaled 27.3 million tons (+ 5.8% compared to September 2013). 229.9 million tons of coal have been delivered by rail since the beginning of the year (+ 0.8% year-on-year). The freight turnover of Russian coal has increased in September by 6.5%.
The main growth driver is coal export to the Asian-Pacific countries. According to the new transportation structure, China, one of the main consumers of Russian coal, is still reducing imports from Russia, but Japanese coal consumption is all-time high.
In September, coal exports to China fell all-time low for the last few years: 45% less than in September 2013. This result was due to internal programme of cutting coal consumption in Chinese economy, launched in 2012. In addition, since October 15, the Chinese Government has imposed coal importation duty — from 3% to 6% depending on coal type. This factor is predicted to have a possible negative impact on the already cut-rate price of coal. The next steps to be taken by China may become restriction on the coal use in the littoral zone, doubling the tax on coal power generation and reducing high-ash and sulfur coal consumption. China has signed gas contracts with Russia to diversify energy sources, as well as it doubled the use of wind turbine generators in 2014. This has been the main reason of the coal surplus in the world market.
Due to the coal surplus growth the prices for coal at all major export markets kept declining in October, by 2%-4% compared with September 2014. Russian companies are at risk of giving under the price competition with Australian and Indonesian coal suppliers. At present in Australia there is modernization of coal industry, including the new technology implementation of coal production and coal transportation to the ports, which tends to decrease its production and transportation in value.
In September, the coal supply to Japan was 30% higher in comparison with the level of the previous year. Despite the fact that two new nuclear power plants may be put into operation in the country by the end of this year, Japan has not abandoned plans to use coal energy sources. Thus, the company Tokyo Electric Power, the damage nuclear power plant "Fukushima" operator has an intention in participating with Mitsubishi Heavy Industries in the reconstruction of the injured province within the framework of large-scale coal project involving the construction of "pure" coal plant.
In addition, according to the Hydrometcentre of Russia forecast, this winter 2014-2015 will be the coldest one over the last ten years. This will stimulate extra coal demand on the part of Russian power generating companies and housing and public utility companies.
Petroleum and petroleum products: transportation volume increase against the price-cutting
In September, the petroleum and petroleum products transportation volume at the network of Russian Railways totaled 20.3 million tons (+ 3.6% compared to September 2013). Since the beginning of the year, the transportation volumes have been steadily increasing, and 190.6 million tons were delivered by rail (+2.3 % compared to last year).
At the heart of September transportation growth there is an increase of domestic traffic (+ 6.5% compared to September 2013) and petroleum products imports from Belarus (+ 105%) and Kazakhstan (+35%). Export supplies have cut down by 0.9% due to traffic flow reduction to China (-75%) and Afghanistan (-93%).
The situation on the world petroleum market is quite intense. The ICE Brent Crude Oil September price fell up to 97 $/barrel, and in October it came down all-time low for the past few years, up to 86 $/barrel. Experts explain the fall in price due to several factors: the deceleration of production rate of growth in China, the light tight oil production in the US and crude oil production increase in Saudi Arabia. Asian-Pacific countries have become the only selling market where the petroleum demand has been growing, and as a result, the competition is getting more intense.
In such circumstances, in the near term the priority aim for Russia will be maintaining current extent of production, what gives opportunity in predicting the maintenance of high-level transportation of petroleum and petroleum products.
Ore mineral: sales geography keeps diversifying
In September, the ore transportation volume amounted to 9.1 million tons (-3.2% in September 2013). Since the beginning of the year, 80.8 million tons of ore have been delivered by rail, which is 2.3% less than in January-September 2013.
The main reason for such decrease is the reduction of export deliveries (-18.4% compared to September 2013), mainly to China (-51%). The reason of it is in the fall of the world iron ore prices year-on-year. However, domestic transportation has risen by 2.4% in September year-on-year due to the growth of ferrous metals output.
Giving way the price-based competition with Australian and Brazilian producers, the Russian-mining companies started looking for new outlets. The deliveries to Japan, launched in January 2014, have been almost kept on ice in September since Lebedinsky GOK (the producer of beneficiated iron ore products) has redirected its deliveries to Slovakia and China. Other companies have also changed their supply routes. As a result, the freight transportation to Poland (+ 53%) and Romania (+ 143%) has increased in September, as well as there has been the start of supplies to South Korea, Spain, Egypt and Germany.
The Chinese selling market is predicted to grow. Norilsk Nickel is negotiating for supplying to China the production of Bystrinsky GOK that is under construction now, as well as for the potential attraction of investors from China for financing this project. The design capacity of the GOK is 10 million tons of ore per year.
Iron ore prices have already hit the bottom, according to the forecast they are unlikely to keep their fall that let us hope on possible loading recovery after structure stabilization of new export logistics.
Ferrous metals: reorientation of export market channels
In September, ferrous metals transportation volume at the network of Russian Railways was 5.9 million tons that is 5.4% higher than previous year. From January to September, 53.3 million tons of ferrous metals were transported (+1.3% compared to January-September 2013).
In September, export shipments of ferrous metals have increased by 13% year-on-year. Countries such as Mexico (+58%), Spain (+30%) and Iran (30%) went on increasing the supply of ferrous metals. At the same time, the United States, having risen Russian ferrous metals imports since January, decreased transportation in September by 37% against August, cutting the consumption of slabs and cast iron by half.
By the end of the year the growth rate of ferrous metals transportation may slow down by 1-2% due to the absence of the "low water" factor.
Grain: transportation growth continues as a result of the record harvest
In September, transportation volume of grain and grain mill products at the network of Russian Railways totaled 2 million tons (+ 18% compared to September 2013). 11.8 million tons have been transported by rail from January to September 2014 (+38.8% year-on-year).
Russia may bargain for the grain harvest of 105 million tons in 2014, and the harvest of many crops is expected to break a record. However, the transportation growth is achieved mainly due to exports (the September increase has been +20% compared to September 2013), as the heavy yield in most Russian regions does not contribute to an increase in domestic grain transportation for procurement of subsistence stores.
Despite the record harvest of soybeans and certain oil-bearing crops, capacities for their processing far outnumber the domestic supply. In such a situation oil-bearing crop import is likely to increase. Especially since three domestic oilseed processing factories will be launched at the end of 2014, and Russia's total capacity will amount to 17.5 million tons. However, the oilseeds harvest is expected to attain about 12 million tons.
As for the winter crops segment, the acreage exceeds that one in 2013 by 4 million hectares. Therefore, there may be a harvest increase next year and, as a consequence, grain transportation growth.
Fertilizers: high global demand has caused the transportation increase
In September, mineral fertilizers transportation volume at the network of Russian Railways totaled 3.9 million tons (+8.3% in September 2013). 37.2 million tons have been shipped since the beginning of the year (+7.2% year-on-year).
Growth of mineral fertilizers transportation has been due to export freight traffic reinforcement (+8% by September 2013) against mineral fertilizer shortage on the world market.
Deliveries in Asian-Pacific countries have displayed the highest growth dynamics. Thus, the volume of Russian fertilizer traffic to Thailand has grown by one and half in relative ratio to September 2013.
In the USA, subsequent to fertilizer demand growth due to logistics problems of Canadian suppliers the prices for it have increased. Prices in the USA are higher level of prices in other markets. As a result, many American companies had to buy goods in other markets, in particular from Russia (Russian exports growth has increased by 44% against September 2013).
The growth of fertilizers transportation from Russia to Brazil is 26.5% more compared to last September that let us call this country one of the most active selling markets for Russia in this segment. In September, the Brazilian market has lacked granular potassium, which has influenced price rise for it.
Further growth in fertilizer demand is expected, despite the steady decline in world prices for agricultural production. Thus, before the year is out, the fertilizer transportation may remain at the current high level, and there is possibility in transportation growth in connection with the production capacity expansion of Russian plants planned for 2017.
Timber freights: exports transportation is still growing
In September, the timber freights transportation at the network of Russian Railways totaled 3.0 million tons (+3.4% against September 2013). 29.3 million tons were shipped by rail since the beginning of the year (+8.5% year-on-year).
The main growth driver is export transportation (65% of loading). In September, timber freights delivery has increased thanks to countries such as China (+ 3.6%), Tajikistan (+51.4%) and Uzbekistan (+11.1%).
Because of the depreciation of the ruble export transportations have been more profitable for manufacturing companies. Their further rise is predicted until the end of the year.
Cement: the transportation volume has exceeded the 2013 volume for the first time since the beginning of the year
In September, the cement transportation volume at the network of Russian Railways totaled 3.2 million tons (+3.2% against September 2013). 25.8 million tons were delivered by rail since the beginning of the year (-5.8% compared to last year).
Cement transportation dynamics is imitating trends of construction materials transportation. Regions increasing cement consumption are actively involved in road and infrastructure facility construction using solid-cast technology (the construction of bridges, elevated roads, siding lines, tunnels). The use of solid-cast construction technologies requires more cement consumption in comparison with the use of precast reinforced constructions.
In Moscow region the cement consumption has increased by 6.3%, while in Tatarstan — by 21.9% compared with the last September.
Until the end of the year, cement transportation volumes are likely to be stable, but they are expected to increase next year due to the start of active preparation for the FIFA World Cup - 2018 and the implementation of major infrastructure projects.
Innovative rolling stock is still increasing its share in the structure of the CIS works implementation
The data on the sales of the rolling stock by plants of the CIS are taken from the magazine «Rolling Stock Market».
In September car building works of CIS sold 4.8 thousand cars (-36% compared to September 2013), 51.7 thousand cars as a whole since the beginning of the year (-21% year-on-year).
The share of innovative rolling stock has been still growing this September: the share of railcars fitted with bogies (25 tf) has increased in the total sales from 5.2% up to 28.3%. compared with the previous September.
New kinds of products have appeared on the market. For example, Altaivagon received a certificate of conformity for a new gondola of 12-2142 model with higher load capacity (up to 75 t), car cubic capacity up to 94 m³ and car service time up to 32 years. In September Altaivagon already sold 150 of these cars.
Mass production of solid-bottom gondola cars, 12-9869 model, with load capacity of 77 t has started on the manufacturing site of Tikhvin Freight Car Building Plant. When using gondola cars with Barber bogies of 75 ton-capacity, tariff shipping cost per cargo ton is reduced by 10-15% compared to gondola cars on model 18-100 bogie. A further load capacity increase by two more tons reduces the tariff shipping cost by 2-5% in addition. The solid-bottom gondola car construction of Tikhvin Freight Car Building Plant allows to run this car without restrictions throughout the whole 1520 gauge and to off-load it at all existing types of dumpers.
Rental rates are still growing
In September, the growth of the gondola rates fortified its position, the rental rate for this type of rolling stock increased by 500-600 rub/day (+5% against the previous month).
The reason for it is the seasonal pickup continuation of freight transportation in gondolas (+0.7% against the previous month), and a high level of inoperative rolling stock. As a result, some operators have announced the lack of gondolas for the freight transportation for its customers.
The rental rate for mineral hopper and grain hopper is in the range of 800-900 rub/day, and the rate for cement hopper is at 700-800 rub/day. Despite significant grain transportation volumes due to high yield, as well as a record fertilizer transportation volumes, there is no pressing demand for hopper cars.
In September, the total transportation volume of fertilizers and grain amounted to 5.9 million tons. Though such result is relatively high in relation to 2013 data but it remains far short of the September 2007 volume (6.4 million tons). At the same time, a mixed fleet of mineral hoppers and grain hoppers in 2007 was only 74 thousand cars, and the present rolling stock is 80 thousand cars. Thus, today’s Russian rolling stock of hopper cars is enough for providing transportation in 2014-2015. The market is ready to come round to a balanced state.
In spite of the growth beginning, market rental rates for rolling stock are still below the minimum level that would ensure maintenance service of rolling stock.
This fact led to the further growth of inoperative rolling stock at the network. In September, this figure increased up to 109 thousand pcs of inoperative rolling stock. At the same time, such great quantity of inoperative rolling stock may cause the growth demand for commercially operative rolling stock, and as a consequence rental rates increase for cars in the medium term.
Leysana Korobeynikova, Senior Analyst