Overview of the Russian Railway Market in January-February 2017
New year – new records
In January 2017, positive trends of the previous year have continued: with a 100.1 mln t shipment (+6.7% as compared to January 2016) and a 203.2 bln t-km freight turnover (+11.2%) a new record has been set for this month.
When compared to January 2017, carriage of the following goods increased: coal (+9.9%) construction freight (+9.1%), ferrous metals (+7.3%), oil and oil products (+1.9%), fertilizers (+5%), timber products (+10.2%), grain (+18.8%), coke (+15.7%), cement (+1.6%), and scrap (+75.9%). Freight traffic of iron ore (-1.4%) and nonferrous ore (-3.4%) dropped.
Coal: record-breaking shipment throughout Russia’s entire history
Shipment of coal in January 2017 set a record the first time ever in Russian history and amounted to 31.4 mln t (+9.9% compared to last January).
This result was possible due to export volumes increased by more than 20% relative to the last year level. Almost all importing countries increased their purchase of Russian coal, with Japan (+20%), China (+25%), Ukraine (+20%), Great Britain (+10%), Germany (by 3.5 times) topping the list. Moreover, the Chinese Ministry of Commerce announced country’s suspending all imports of coal from Northern Korea till the end of the current year. In order to compensate for the lost volumes, supplies of Russian coal to China may rise.
The development of port infrastructure give rise to export growth. As early as in 2017 JSC Vostochny Port intends to implement the third stage of the marine terminal that will allow for exports of 39 mln t of coal in 2019. The implementation of the investment project in Vanino seaport with a view to increasing the capacity of the Vanino bulk terminal with the development of railway infrastructure will rise the productivity from 19 to 24 mln t in 2017.
The growing demand for Russian coal among Asia & Oceania countries combined with the development of port infrastructure in the RF facilitates further growth of the shipment of coal on the RZD network.
Oil and oil products: high quality diesel fuel in support of the freightage
In January 2017, the shipment of oil amounted to 31.4 mln t (+1.9% when compared to last January), at the same time the transportation of diesel fuel on the RZD network grew by 9%.
Among the enterprises having increased the hauling of diesel fuel Antipinsky Refinery, a part of New Stream group of companies, is in the lead. In 2016, the enterprise’s refining yield reached 98% with the quality of diesel fuel conforming to Auro-5 standard. In 2017, a complex unit for the production of high-octane gasolines for the release of Euro-5 standard gasolines is planned to be put into operation.
Despite positive dynamics in January, in the mid-run, railway transportation of oil and oil products is not expected to show significant improvements. The situation may improve in the long run with the growth of production of high-quality oil products.
Construction freights and cement: positive dynamics early this year
Shipment of construction freights in January 2017 amounted to 7.7 mln t (+9.1% compared to last January), of cement – 1.1 mln t (+1.6%).
Construction market has noticed positive trends despite of the completion of the mortgage state subsidy program scheduled for March, 2017. Experts believe that this fact will not significantly affect the market, since the current market rates have already approached 12 %. According to deputy head of the Ministry of Construction, Nikita Stasishin, the rate on housing lending may fall to its lowest level in history: less than 10%.
The construction industry will also gain support from development of road network in Russia. Toward the end of January, the RF Government distributed 8.3 bln rubles for the construction of roads to significant facilities in villages for production and processing of agricultural products in 54 regions. Small subsidies were allocated to Bashkorkostan (0.6 bln rubles), Tatarstan (0.6 bln. rubles), and Udmurtia (0.6 bkn rubles). The overall funding provided by the government to revamp roads amounted to 30 bln/ rubles this year.
85% of federal highways are planned to be brought to the normative condition. The share of compliant roads for the period from 2010 to 2016 rose from 39% to 71%.
The improvement of the quality of roads will concur with the the fare rise. Since the mid of April, the rate in “Platon” system must be doubled. Now, carriers will have to pay 3.06 rubles per kilometer driven on federal highways.
The aggregation of the above listed factors with the active preparation for the 2018 FIFA world cup underway (the costs for preparation have been increased by 19 bln rubles at the end of January), in the mid run, may lead to a smooth restoration of transit of construction materials.
Ferrous metals: export-destination switch to Turkey
Shipment of ferrous metals in January 2017 amounted to 5.9 mln t (+7.3% compared to last January).
The key countries having increased the imports of Russian metal products are Turkey (+25% when compared to January 2016), Taiwan (+10%), USA (by 1.5 times), whereas transportation to Italy edged down by 15%.
In the short term, the transit of ferrous metals may rise if the tendency of restoration of export cargo traffic continues.
Iron and manganese ore: anticipated decline
Shipment of ore in January 2017 stood at 8.8 mln t (-1.4% when compared to last January), and the fall was mainly due to the decline in exports to China (-65%). The cause of this decline lies in the growth of exports of rolled metal, thus the most part of ore was processed within the country.
In case of stable export cargo traffic of ferrous metal, this trend will stay around.
Timber Products: growth of haulage to China
Shipment of timber products in January 2017 amounted to 3.2 mln t (+10.2% relative to last January), mainly due to a 12% increase in export.
The most of supplies were shipped to China: in January 2017, a 20% export growth was seen when compared to previous year which is in line with the growth rate of 2016. Therewith, supplies comprise low-quality wood.
The situation may change in the spring of this year in the event the RF Government establishes duties and quotas for low-quality sawn wood, as well as the introduction of round timber and wood exchange trading.
Grain and milled grain products: transit growth obstructed by adverse weather conditions
Shipment of grain in January 2017 amounted to 1.6 mln t (+18.8% when compared to last January), at the same time the growth of transit was mainly due to the increase in exports (twice to Egypt, four times to Turkey, furthermore, exports to Syria has been launched).
However, export performance severely curtailed due to bad weather conditions in Novorossiysk port, which lead to Novorossiysk port terminals being off-duty 30% to 80% of the time.
A discounted tariff for export transportation of grain if certain volumes are ensured may have a positive effect on transportation. The possibility of the discount was announced by RZD at the end of February.
Chemical and mineral fertilizers: Ukrainian duties postponed
Shipment of fertilizers in January 2017 amounted to 4.9 mln t (+5% relative to last January), transportation growth was conditioned by a 7% increase in export, whereas domestic haulage grew by only 4%.
China (+15%), Ukraine (+45%), USA (almost twice) increased imports of Russian fertilizers.
In the middle of February, Ukraine postponed the introduction of anti-dumping duties on fertilizers from Russia. The Interdepartmental Commission for World Trade estimated that in order to ensure Ukraine's food supply security, "there is an urgent need to take measures to diversify the supply of fertilizers to Ukraine (from China, the Middle East countries, the United States and others)." With no duties in place, export freight traffic to Ukraine will keep on growing.
Rates will rise till April
The source of data on sale of the rolling stock and rent rates – the “Rolling Stock” magazine.
In January 2017, the sales of freight cars by CIS plants increased by 45% to 3,500 units by January of the previous year, mainly at the cost of new generation cars (1.8 thousand units). In comparison with the figures as of December 2016, the sales declined by one third, for most enterprises had a long holiday season in January.
The amount of discarded stock in January 2017 was expectedly reduced by half relative to last year's level and amounted to 2.8 thousand cars. At the same time, for the first time in two recent years, rolling stock production exceeded the number of write-offs.
Rolling stock commercially suitable for rail haulage stood at 984 ths units. As of the beginning of February nonoperational fleet comprised 82 ths units, idle fleet – 85 ths units. (a total of 10 thousand units of which are gondola cars).
In February, the cost of rent of gondola cars mounted on standard 18-100 bogie and its analogies rose to 1,100 rubles/day. Market players expect a further increase in rates up to 1 200 rubles/day as early as this April.
Leysana Korobeynikova, Senior Analyst
