July: cargo turnover increases
Transportation volume growth continued in July 2018: loading amounted to 107.6 million tons (+1.0% against the same period of last year), cargo turnover - 219.3 billion ton-km (+5.3%).
Transportation of coal (+3.8%), iron ore (+9.8%), ferrous metals (+8.2%), timber freights (+2.7%), scrap metal (+7.1%) and grain (+15.4%) has increased. At the same time, transportation of oil (-1.0%), construction cargo (-10.2%), fertilizers (-4.2%) and cement (-3.4%) has decreased.
Coal: high demand for coal boosting the development of infrastructure
Coal loading in July increased by 3.8% as compared to last year and amounted to 29.9 million tons, repeatedly setting a record for this month over the last 15 years. Since early 2018, a total of 216.1 million tons of coal were shipped by rail, which is 4.9% higher than in the same period of 2017.
In July, both domestic (+6.7%) and export (+2.1%) transportation increased. Germany and Poland have increased the import of Russian coal more than the other countries - supply to these countries amounted to approximately 1.2 million tons.
According to the draft Long-term Development Program of JSC RZD, coal transportation will reach 500.5 million tons by 2025. However, presently the rate of loading is such that the increase in coal volume transportation to the East will be higher than previously assumed: instead of 180 million tons by 2025, it will be about 195 million tons, or about 240 million tons according to other forecasts. Such level of loading is possible due to implementation of the second stage of reconstruction of the Baikal-Amur Mainline and Transsib, the cost of which is 460.4 billion rubles. The result of reconstruction should be a 1.5-fold increase in the train-handling capacity of the railway in Siberia and Transbaikalia by 2024.
The infrastructure of the Far East is actively developing at the moment. Thus, JSC RZD and Sukhodol Seaport Ltd. have signed a contract for services aimed at joining of non-public railway lines of the stevedore. At the first stage, the volume of coal transportation by rail to the port is estimated at only 6 million tons, and in the future it is predicted to grow to 20 million tons as early as in 2022.
In addition, JSC Daltransugol (a coal terminal near Vanino port in the Khabarovsk Territory, a member of SUEK) declared its intention to reconstruct the terminal in order to increase the transshipment capacity by 1.7 times to 40 million tons per year. The company plans to install the third triple car dumper, which will unload cars with a load of 27 tons per axle.
In the context of developing capacities for coal shipment, further growth of coal transportation by rail is forecasted, if the favorable world business environment remains unchanged.
Oil and oil products: RZD plan growth of transportation by 2025
Loading of oil and oil products increased by 1.0% in July and amounted to 19.5 million tons. A total of 137.4 million tons of oil and oil products were shipped by rail since the beginning of 2018, which corresponds the value in the same period of 2017.
Despite the continuing trend of decline in transportation by rail due to the development of the pipeline system, RZD plans to increase the volume of oil shipments to 260 million tons by 2025, according to the Long-Term Development Program.
Such volumes of loading are planned to be achieved due to the implementation of projects aimed at increasing capacities of the Eastern Petrochemical Company and the Amur Gas Processing Plant, as well as building a systematic work on interaction with Transneft regarding the geographical and product segmentation of oil and oil products transportation by rail and pipeline transport, respectively. In addition, due to the development of infrastructure they plan additional exportation of the export-oriented products of oil and gas chemical industry enterprises in the north of the Urals Federal District to the of North-West ports.
Nevertheless, in the short term, the shipment of crude oil and refined products by railways will continue to decline, and the increase in transportation planned by RZD will not begin until 2019.
Construction materials and cement: loading still declines
Loading of construction cargo decreased by 10.2% in July as compared to the same period of last year and amounted to 11.4 million tons, and loading of cement - by 3.4%, amounting to 2.8 million tons. Since early 2018, a total of 74,4 million tons of construction cargo and 14.6 million tons of cement were shipped by rail, which is 4,2% and 5.5% lower than the values observed in the same period of 2017.
According to the Federal State Statistics Service, housing commissioning amounted to 5 million m2 in July, which is 8.1% lower than in July of 2017. Over the 7 months of 2018, housing commissioning was 1.9% higher as compared to the same period last year. At the same time, the Ministry of Construction continues to forecast the volume of housing construction for the current year at 80 million m2, whereas in 2017 a total of 79.2 million m2 was put into operation, and by 2024 an annual volume of up to 120 million m2 is planned to be reached.
According to an estimation of the Union of Cement Manufacturers, by the end of 2018 the volume of cement transportation will be lower by 1-3% than in the previous year. At the same time, shipment to motor transport will have a positive dynamics of about 2-4%. On a whole, cement consumption in 2018 will remain at the level of the previous year.
In order to implement the decrees issued by Russian President Vladimir Putin in May, the Ministry of Economic Development proposed the construction of almost 700 sites in the total amount of 7 trillion rubles in the next few years, including reconstructing A-147 Dzhubga-Sochi tracks, and implementation of such projects as the bridge over the Ob River in Novosibirsk and the bridge over the Lena River in the Republic of Sakha (Yakutia).
Thus, the revival of the transportation of construction materials and cement by rail may be expected not earlier that in the next year along with the start of new construction season and in proportion to the implementation of the governmental plans to increase construction and commence new projects.
Ferrous metals: transportation growth can possibly slow down
Loading of ferrous metals increased by 8.2% in July as compared to the level of the previous year and amounted to 6.6 million tons. Since early 2018, a total of 46.1 million tons of ferrous metals have been shipped by rail, which is 11.6% higher than the value in the same period of 2017.
The increase in freight handling occurred in July due to both domestic (+10%) and export (+20%) transportation. Shipments to Taiwan has increased (by 2.6 times), Italy (by 1.7 times) and Turkey (+20%).
However, the situation may change soon. According to Andrey Eremin, Director of Economic Affairs of MMK Group, the consumption of steel products in Russia increased by approximately 6.5% last year, while the growth rate is lower this year and will be about 2%, although previously it was expected to grow to 4%. The slowdown in growth is caused by an increase in value added tax to 20% in accordance with the new legislation.
In addition, due to a new round of imposing duties and restrictions on the world market, the situation may worsen even in export directions.
Ore: Internal demand increases
Ore loading reached a record level over the last 15 years in July and amounted to 10.1 million tons, which is 9.8% higher than the level of the previous year. Since the beginning of 2018, a total of 67,1 million tons of ore were shipped by rail, which is 5.1% higher than in same period of 2017.
The positive dynamics in domestic transportation continued in July and increased by 11%, while exports remained at the level of the last year.
The volume of ore transportation by rail will be determined by the adjustment of demand from domestic metallurgy in connection with the deterioration of the global situation in the steel market.
Timber freights: loading record for July over the last 10 years
Loading of timber cargo in July increased by 2.7% against the level of the previous year, setting a record for this month over the last 10 years , and amounted to 3.8 million tons. Since the beginning of 2018, a total of 27.3 million tons of timber cargo was shipped by rail, which is 3.2% higher than the value observed in the same period of 2017.
The increase in loading occurred in July due to both domestic (+17%) and export (+6%) transportation. The supplies increased to China (+2.5%), Finland (+11.4%) and Kazakhstan (+22%).
Soon a serious revival can occur in this sector due to the public policy. Currently, the Ministry of Industry, DOM.RF and Russian regions are developing proposals for the implementation of pilot projects for the construction of houses made of wood, which must be submitted before September 3, 2018. At the same time, the Ministry of Construction, the Ministry of Finance and the regional authorities must establish a selection procedure, according to which the subsidies for the construction of wooden houses will be allocated. The Ministry of Construction also has the task to develop a project that establishes the period for which a preferential mortgage rate will be applied to wooden factory buildings and to prepare the requirements for construction materials.
In addition, in August a representative of the Ministry of Industry and Trade informed that at the moment the Cabinet is already preparing proposals for the program, which will provide a compensation of business expenses for the construction of infrastructure that provides access to forest resources.
Thus, the forest industry of Russia can soon get a significant boost to growth, and then the transportation of timber cargo by rail will rise to a new level.
Grain and grain mill products: transportation will drop a bit
Grain loading in July amounted to 1.5 million tons (+15.4% as compared to July of the previous year), setting a record for this month over the last 15 years. Since the beginning of 2018, a total of 15.9 million tons of grain were shipped by railroad, which is 51.8% higher than the value in the same period of 2017.
Domestic shipments remained at the level of the last year, and export increased by 1.5 times due to an increased volume of supplies to Egypt (1.5 times), Turkey (3 times) and Bangladesh (with almost no deliveries last year).
The Ministry of Agriculture of the Russian Federation reported in August that the grain harvesting is expected at the level of 100-105 million tons in 2018. The experts do not exclude that in August the rate of grain exports from Russia will slow down due to a decrease in export prices for these products. In addition, the unstable financial situation in Turkey, as well as the intention of authorities to carry out grain interventions by offering about 2 million tons of products to the market can contribute in reducing the demand for Russian wheat.
Thus, the transportation of grain by rail in the new season will be reduced due to lower yield and lower grain prices.
Chemical and mineral fertilizers: seasonal revival expected
Loading of fertilizers in July amounted 4.6 mln.t. (-4.2% against July of the previous year). Since the beginning of 2018, a total of almost 34.7 million tons of fertilizers were shipped by rail, which is 4.6% higher than the value in the same period of 2017.
Domestic shipments grew by 3%, while exports decreased by 5% mainly due to a drop in supplies to China (-20%) and Ukraine (-70%). At the same time, volumes of export to Ukraine have increased more than two-fold as compared with the previous month after WTO had considered the raising duties by Ukraine as not complying with the rules. At the same time, supplies of Russian fertilizers to the US and Brazil increased by 100 thousand tons as compared with July of last year. Therefore, the overall decline in exports is likely to be of a local nature due to the restructuring of logistics, as well as the outflow of the hopper fleet to the grain transportation segment.
According to estimations of PhosAgro, the seasonal demand growth is expected in August-October due to a number of factors. First, the upcoming main autumn season in such markets as Russia, Europe and North America. Secondly, the appearance of the first signs of seasonal restoration of imports into Brazil - imports of MAP decreased by almost 40% in the first half of 2018 relative to the same period a year earlier, which means the likely emergence of additional demand in August-September. Third, the beginning of a high season in China, where local companies more focus on the domestic market.
Manufacturers continue to expand the capacities. In August, Wuhuan Engineering and SPC “Gorny” signed the agreement to build a fertilizer plant with a capacity of 1.5 million tons of products on the basis of the property complex of enterprise “Gorny” in Saratov region. The intended period for the investment project implementation and attainment of projected capacity is the end of 2024.
All the prerequisites for a further increase of fertilizer transportation by rail remain in the market.
Most of the fleet is in the deficit segment
The source of data on rolling stock sales and rental rates is Rynok Podvizhnogo Sostava (The Rolling Stock Market) magazine.
The commercially usable fleet is 1,033 thousand units, while the defective fleet remains at a low level of about 51,5 thousand units at the beginning of August. As a result, the surplus of the fleet was 45 thousand units.
In most of the segments, the increase in freight turnover outpaces the fleet growth. The only exception is the fleet of oil-petrol tanks (due to the loss of cargo base) and the fleet of platform for transportation of timber products (replenishment of a part of the gondola cars fleet focused on coal transportation).
According to JSC RZD, a deficit of gondola cars is expected in the upcoming fall. It can amount to about 20.8 thousand units, and is expected to grow in the following years to reach 46 thousand gondola cars, 12.2 thousand grain carriers and almost 10 thousand platforms by 2025. The reason is the lack of cast parts of car trucks and solid-rolled railway wheels (SRRW), as well as the growth of prices for them. According to preliminary estimates, at the end of this year, up to 50,000 cars that could be involved in transportation can be queued for repair.
In July, the sales of cars by the CIS plants amounted to 7.3 thousand units, which is 28% higher than the results of July 2017. (5.7 thousand units). At the same time, only 2.3 thousand cars have been decommissioned. A total of 4.5 thousand of the gondola cars were sold, which significantly exceeds the amount of their decommissioning (0.2 thousand units).
The rental rate for standard gondola cars remained at the same level - about 1,800 rubles per day.
At the beginning of August, the fleet of new generation cars by different manufacturers exceeded 112 thousand units.
Leysana Korobeynikova, Head of Analysis