Overview of the Russian railway market in April-May 2015
Loading: growth continued
In April 2016 the loading amounted to 101.4 mln t (+1.6% compared to April 2015).
Transportation of coal (+4.3%), construction materials (+24.3%), fertilizers (+2.4%) ferrous metals (+3.4%), timber freights (+7.9%) and grain (+33.3%) increased. Transportation of oil and oil products (-10.7%), iron and manganese ore (-4.1%) ferrous metals scrap (-4.1%) decreased. It is worth mentioning that the drop in cement traffic, that has been observed over the last 2 years, has ceased.
Freight turnover amounted to 189.6 bln t-km in April 2016. The growth by 2.2% is due to the record-high level of export freight traffic (coal, fertilizers, ferrous metals, grain).
Coal: loading sees rapid growth due to export
In April loading of coal on the Russian Railways’ network increased by 4.3 % compared to last year’s level and amounted to 26.5 mln t, having once again set a record of transportations of the month for the last 15 years. A total of 109.8 mln t of coal were transported by rail during 2016, and that is by 3.8% higher than the level of 2015.
In April the mining of coal was by 7.4% higher according to RF Ministry of Energy.
The domestic traffic decreased by 5% and export traffic increased by 13%. Freight traffic increased to China (by 1.8 times), to South Korea (by 2.3 times), to the Ukraine (by 1.4 times) and to the EU. In addition, the deliveries to India continue to increase.
A significant increase of coal deliveries to China is due to the introduction of the ban on the import of coal from Democratic People's Republic of Korea by the ministry of trade on April 5th. This decision opens opportunities for additional deliveries of the Russian coal to China. Almost all coal deliveries from North Korea to China are the high-grade anthracite used generally in power plants, at the same time their share in the Chinese import of anthracite is nearly 90%. Only Australia can act as a serious contender of the Russian Federation to compensate these volumes. Having said that, Russia has the best geographical position: transportation of coal to northeast China, to which area North Korea was previously exporting coal, is cheaper and more convenient.
In the medium term the export of the Russian coal may additionally grow as a compensation by China of anthracite from Democratic People’s Republic of Korea, which deliveries are banned.
Oil and oil products: drop continued as it was expected
In April the loading of oil and oil products on the Russian Railways’ network decreased by 10.7% relative to last year’s level and amounted to 18.4 mln t. A total of 79.7 mln t of oil and oil products were transported by rail since the beginning of 2016, and that figure is by 7.9% lower than the level of 2015.
According to RF Ministry of Energy, oil extraction increased by 1.6% compared to last year’s level.
Domestic oil and oil products traffic decreased by 9%, and export ones – by 15%. Main decrease is still due to the transit through the Netherlands: supplies are lower by a third than last year’s level. Besides, export freight traffic to South Korea (by 2 times), Belarus (-25%), as well as to Turkey (deliveries to the country have practically stopped) has decreased.
Transportation of oil and oil products by rail will further remain at the current low level due to the complicated environment of the global markets, as well as due to the commissioning of new pipeline capacities.
Construction materials and cement: growth thanks to projects backed by the state
In April, the loading of construction materials on the Russian Railways’ network grew by 24.3% as compared to last year’s level and amounted to 12.8 mln t. At the same time, the loading of cement remained at last year's level and amounted to 2.3 mln t. A total of 41.6 mln t of construction materials (+21.5% compared to 2015) and 7 mln t of cement (-7.9%) were transported by rail since the beginning of the year.
The transportation of construction materials to Novgorod (by 2.5 times), Tyumen (+30%) and Moscow Regions (+15%), as well as to Krasnodar Krai (+35%) increased.
The growth of freight traffic to Novgorod Region is due to the dynamic construction of the motorway М-11 669 km long.
The increase in construction freight dispatch to Tyumen Region is caused by the development of Tobolsk. Firstly, “ZapSibNefteHim”, petrochemical plant of “Sibur” group is being built in the city. The implementation of the project means high freight traffic density on the city roads network, and new bypass roads are reconstructed and built in order to deliver freight to the construction site. Secondly, the dispatches of the crushed stone, supplied from the Sverdlovsk Region via the Tobolsk river port, have seen considerable growth. The very port won the competition the “Branch leader” in the nomination “The best river port in the Russian Federation for 2015”.
Thus, projects backed by the state, still remain the drivers of construction freight traffic growth. The recovery of the branch to a pre-crisis level may happen not earlier than in 2017-2018, but an active increase in freight traffic compared to the level of 2015 can already be observed.
Ferrous metals: growth due to the domestic consumption
In April, the loading of ferrous metals on the Russian Railways’ network increased by 3.4% relative to last year’s level and amounted to 6.0 mln t. A total of 23.8 mln t of ferrous metals were transported by rail during 2016, and that figure is by 2.7% lower than the level of 2015.
The domestic freight traffic increased by 5% while export traffic decreased by 4%. Main drop in export is to Turkey (by 2 times compared to last year’s level). The supplies of ferrous metals to Italy (nearly by 7 times), as well as to Vietnam and Egypt continue to increase, whereas last year there were no supplies to these countries. It is worth pointing out, that compared to March the supplies to Taiwan and the US, which have been increasing for the last couple of months, have seen a double decrease, and that has been making it possible to compensate for the loss of the Turkish market.
At the end of April, the European commission introduced licensing of the import of all kinds of rolling, including pipes and metal products, provided that the batch exceeds 2.5 t in order to protect its own production. That measure is penciled in to be in effect until May 15th 2020. The regulations will impose new bureaucratic barriers for the Russian manufacturers in the European market.
A further export decrease is likely to happen due to new restrictive measures on the part of the EU, despite the growth of the world prices for steel, as well as reduction of domestic demand for ferrous metals.
Iron and manganese ore: multidirectional dynamics of domestic and export freight traffic
In April, the loading of ore on the Russian Railways’ network decreased by 4.1% relative to last year’s level and amounted to 9.4 mln t. The drop is partially due to a high base effect of last year: freight traffic set a record over the last 10 years in April last year. A total of 35.9 mln t of ore were transported by rail since the beginning of 2016, and that figure is by 1.5% lower than the level of 2015.
Domestic freight transportations decreased by 10%, and export ones increased by 14%. Main export growth was to Italy, having said that, there were no supplies to that country last year. In addition, volumes of supplies to the Ukraine (by 2.3 times) and to Finland (by 2.6 times) increased.
According to the vice-minister of the People’s Republic of China, the volume of excessive capacities of the metallurgical industry of the People’s Republic of China is not yet decreasing, and the increase in prices from the end of last year has no fundamental justification behind it. At the same time, analytics at Goldman Sachs raised its iron ore forecasts for 2016, but warned that recovering prices may get the problems back on the market, since the suppliers still ready to increase the production of raw materials.
In the current conditions, the growth of iron ore traffic is likely to happen due to the stabilization of the prices for ore and new restrictions for the Russian export of ferrous metals that will inevitably lead to the export of additional volumes of iron ore.
Grain and milled grain products: high level of export will maintain in the next season too
In April the loading of grain and milled grain products on the Russian Railways’ network increased by 33.3% compared to last year’s level and amounted to 1.6 mln t. A total of 6.6 mln t of grain were transported by rail since the beginning of 2016, and that figure is by 13.1% higher than the level of 2015.
In April 2016, the domestic freight traffic increased by 16%, and export traffic increased by 60%. Egypt still accounts for main export increase (by 7 times compared to April 2015). One should point out to the increase in domestic freight traffic to the Rostov (by 3.5 times) and the Kaliningrad (by 2.6 times) Regions.
Minister of Agriculture of the Russian Federation Alexander Tkachev believes, that Russia will be able to retain the title of the world's top wheat exporter in the new agricultural year, exporting 25 mln t of wheat. According to him, Russia is working at the issue of soya and wheat supplies to Japan.
According to estimates made by the U.S. Department of Agriculture, the grain yield in Russia in the season 2016-2017 will exceed 100 mln t. According to the report of the department, yield of wheat in the Russian Federation increased up to 63 mln t from 61.04 mln t (during 2015-2016).
Thus, preservation of the current high level of grain freight traffic is forecast.
Chemical and mineral fertilizers: freight traffic retain at a record high level
In April the loading of fertilizers on the Russian Railways’ network increased by 2.4% compared to last year’s level and amounted to 4.3 mln t, having reached a record level for the last 10 years. A total of 18 mln t of fertilizers were transported by rail since the beginning of 2016, and that figure is by 5.3% higher than the level of 2015.
Domestic freight traffic decreased by 4%, while export freight traffic increased by 10%. The US (by 3 times), Brazil (by 1.5 times), the Ukraine (+35%) and the United Arab Emirates (last year there were no deliveries to that country) increased deliveries of fertilizers from Russia.
According to the Ministry of Agriculture the Russian landowners increased purchases of mineral fertilizers from the beginning of the year till May 10th by 13% compared to the indicator on this date in 2015 – up to 1.5 mln t.
The mineral fertilizers rail transportation may maintain at the current high level if the current favorable conditions in export markets are kept.
The market stands still expecting the balance in freight cars fleet
The source of data on sale of the rolling stock is the magazine “Rolling Stock Market”.
In April 2016 the sales of freight cars manufactured in the plants of the CIS countries amounted to 2.104 items, that figure is by 4% lower than in April 2015 and by 3% lower than in March 2016.
The drop in sales in the segment of standard type freight cars set on bogies 18-100 and its counterparts amounted to 22% compared to April 2015.
The write-off for April is still at the high level: 12.0 thsd. freight cars, of which 4.2 thsd. are gondolas. A total write-off for 4 months of 2016 amounted to 46.6 thsd. freight cars (by 2.5 times more, than for the similar timeframe of 2015). It should be pointed out that many owners started an accelerated write-off of railcars: in April the rolling stock, which service life ends in 2017-2020, was actively disposed of.
The number of railcars in faulty rolling stock fleet amounted to about 100.4 thsd. items at the end of April. The rolling stock commercially suitable to be utilized on the Russian Railways’ network reduced to 1 004 thsd. railcars. The real surplus of the fleet fell to 100 thsd. items (of which gondola cars – 17 thsd.).
Current conditions forced the market participants to have a wait-and-see attitude. Earlier experts were predicting the shortage of rolling stock at the end of spring and at the beginning of summer accompanied with the increase in loading of construction freight. Besides, the situation regarding consolidation of freight car fleet remains unclear. The final decision regarding this issue has not yet been adopted. At the same time, banking analytics still forecast the growth of rent rates by the end of the year: from the current 600-650 rub/day up to 700-800 rub/day (for standard type rolling stock).
In the segment of new generation freight cars the situation is stable: 100% of freight cars manufactured in the Russian Federation in April were innovative ones. Operational use of new generation freight cars still demonstrates high efficiency. According to the statistical data, the operational use of the fleet applying Barber bogie the average freight turnover per 1 gondola car with increased axle load amounted to 495 thsd. t-km in April (+111% compared to standard type freight cars).
Leysana Korobeynikova, Senior Analyst