Overview of the Russian Railway Market in March-April 2017
Freight turnover set a new record over the recent history of Russia in March 2017
In March 2017, the positive dynamics of the beginning of the year continued: loading amounted to 109.0 mln t (+ 3.8% compared to the same period last year), freight turnover – 214.8 bln t-km (+ 8.4%). Moreover, freight turnover indicator became a record one for the entire recent history of Russia.
The transportation of coal (+ 9.9%), iron ore (+ 4.3%) and mineral fertilizers (+ 2.1%) increased. The transportation of construction freight (-5.0%), ferrous metals (-4.5%), timber freight (-2.4%), grain (-5.3%) and coke (-9.1%) decreased compared to the previous year.
Coal: “Debbie” helps the Russian coal miners
Loading of coal in March 2017 set a record for the month and amounted to 31.0 mln t (+10% compared to March last year). A total of 91.1 million tons of coal was transported by rail since the beginning of 2017; that is by 9.3% higher than during the same period of 2016.
The growth of loading is still due to the increase by almost 20% in export traffic compared to the level of the previous year. The main countries that increased the import of Russian coal were Turkey (4 times increase), Great Britain (+ 20%), China (+ 30%), Poland (2.4 times increase) and India (almost 3 times increase). In addition, the dispatch of Russian coal to Cypriot companies (+ 30%) significantly increased, although in this case it is more about re-export freight traffic to the APR countries and the Ukraine. According to the customs statistics of the Ukraine, at present Cyprus is the third largest supplier of coking coal to the country.
At the end of March, BHP Billiton and Glencore mining companies suspended coal mining in mines in the coal region of Australia due to the tropical cyclone “Debbie”. Short delivery scope is evaluated at the level of 13 mln t. In spite of the fact that mines were practically not damaged, “Debbie” damaged the railroad that is connecting mines and the port and blocked export of a part of the coked coal from the State of Queensland that is providing for a half of world deliveries. According to the estimates of the railway operator Aurizon, at least five weeks will be required to repair railway tracks.
The consequences of the cyclone induced such large buyers as China and Japan to start looking for new suppliers. Russia could, along with other countries, increase the volume of coal shipments and benefit from the reduction of Australian supplies, but experts note that the capacity of the ports of the Far East will not allow domestic coal miners to rapidly increase exports.
Oil and oil products: disputes ended – export started
Loading of oil and oil products in March 2017 reached last year level and amounted to 20.7 mln t. A total of 61.2 mln t of oil and oil products was transported by rail, that figure is by 0.2% lower than the figure of the same period last year.
In March deliveries of oil and oil products to Belarus (by 2 times) and to Turkey (there were almost no deliveries to that country last year) increased compared to last year level. Positive dynamics of dispatched to these countries is due to the restoration of freight traffic amid the improvement of political climate.
In April Russia and Belarus signed several agreements with which they resolved tension in oil and gas sector lasting from last year. According to the agreement, starting from 2021, Russia may recommence deliveries to Belarus of more than 24 mln t of oil. Potential of growth of transportations by railway transport can amount to 40% in addition to the current level.
Construction freights and cement: restoration is not expected yet
Loading of construction freights in March 2017 amounted to 11.3 mln t (-5.0% compared to March of last year), of cement – 2.1 mln t (is the same as the level of last year). A total of 27.9 million tons of construction freights and 4.6 million tons of cement were transported by rail since the beginning of 2017; that is lower by 3.2% and 2.3% respectively than the same period of last year.
According to the report of “The Rating Agency of Building Complex (R.A.B.C.)”, the crisis in the construction branch is aggravated because of the reduction of state orders, squeeze of demand from the population and expensive bank loans. According to experts, state orders account for 60% of all construction works.
Projects with the state support will be further backing construction branch, for example, the program for the demolition of 25 mln m2 of five-floor housing which, by different estimates, can cost 2.5-3 trillion rubles to be allocated from the Moscow budget. The project implementation is planned to be started already in September of the current year, and the implementation will take more than 10 years. The project will be contributing to the growth of transportations of construction freights to the region.
Ferrous metals: drop in export amid strengthening of the competition in the world market
Loading of ferrous metals in March 2017 amounted to 6.3 mln t (-4.5% compared to March of last year). A total of 17.8 mln t of ferrous metals was transported by rail since the beginning of 2017; that is by 0.4% higher than in the same period last year.
At that falling of transportations happened both on domestic (-3%), and export directions (-7%). Italy (-40%) and Egypt (-80%) became the key countries which reduced import of the Russian steel products. Besides, deliveries to Vietnam and Malaysia practically stopped. However, deliveries to Finland (there were almost no deliveries to that country last year), Belgium (by 1.5 times) and Kazakhstan (+40%) increased.
The decline in export freight traffic, was caused, in the first place, by the Chinese companies having returned with cheap steel products to the world market. In March manufacture of steel in the People’s Republic of China increased by 1.8% up to the record 72 mln t despite opposite statements of Beijing about considerable reduction of metallurgical capacities.
Other countries as well, including the importers of the Russian products, are increasing steel production. Production of steel in March increased by 9.5% in Italy and in Turkey – by 14% in comparison with the level of last year.
In the current market conditions, experts forecast a further decrease in transportations of ferrous metals by rail.
Iron and manganese ore: export of ore is increasing amid the increase in manufacture of steel in the world
Loading of ore in March 2017 amounted to 9.6 mln t (+4.3% compared to March of last year). A total of 26.6 mln t of ore was transported by rail since the beginning of 2017; that is by 0.2% higher than the same period last year.
Export transportations (+6%) became the driver of growth of loading: to Turkey (by 2.4 times), as well as to Japan, Kazakhstan, Serbia and Egypt whereas there were no deliveries to these counties last year.
In the medium term, growth of transportations of ore on the export directions amid increase in manufacture of steel in the world, as well as decrease in production of ferrous metals by the Russian producers is expected again.
Timber freight: small decrease in loading amid high base of last year
Loading of timber freight in March 2017 amounted to 4.1 mln t (-2.4% compared to March of last year). A total of 10.8 mln t of timber freight was transported by rail since the beginning of 2017; that is by 3.9% higher than the same period last year.
Export freight flow decreased by 2%: to Finland (-15%), Egypt (twice) and Japan (-20%). However partially such drop is caused by significant growth in transportations of timber to China in March of last year. At the same time, export to China is higher only by 3% in March 2017.
In the medium term, timber freight traffic is likely to grow moderately.
Grain and milled grain products: despite effective customs duties a record amount of wheat was shipped to Turkey in March
Loading of grain in March 2017 amounted to 1.8 mln t (-5.3% compared to March of last year). A total of 5 mln t of grain was transported by rail since the beginning of 2017, this figure is by 0.6% higher than the same period last year.
The main drop in transportations occured to Saudi Arabia (two times). The deliveries to South Korea, Yemen, Mongolia and Spain ceased almost completely. However, despite protective duties imposed on the Russian wheat, nearly 4 times more produce was imported to Turkey in March. According to experts, exporters were able to increase deliveries under old agreements, which were concluded prior to the 15th of March.
According to Director of the department of strategic marketing of CJSC Rusagrotrans Igor Pavensky, the April assessment of export is lowered from 3.07 mln t to 2.6 mln t. Lowering of the assessment of export is due to the action of the Turkish protective duties and to the preservation of a strong ruble, as well as due to the control of sales of wheat amid reduction of prices in domestic market and delays of deliveries to Egypt to GASC (the state company of Egypt, holding tenders for grain purchase).
As a result, the new forecast of export for this agricultural year says about 35.3 mln t against the previous assessment being 36 mln t. The forecast of export of wheat is lowered down to 27.2 mln t from 27.6 mln t (24.8 mln t in the previous agricultural year).
In the short term the difficulties that occurred in the export markets can reduce volumes of transportations of grain by rail, however in the medium term growth of loading, due to the current growth of reserves of grain, is predicted (+20% compared to the beginning of April of last year).
Chemical and mineral fertilizers: stable growth continues
Loading of fertilizers in March 2017 amounted to 4.9 mln t (+2.1% compared to March of last year). A total of 14.3 mln t of fertilizers was transported by rail since the beginning of 2017; that is by 5.1% higher than the same period last year.
China (+16%), Brazil (+25%), the USA (+20%) and Turkey (there were no deliveries to that country last year) increased import of the Russian fertilizers.
If current tendencies in the market are maintained a further growth of transportations of fertilizers by rail is predicted.
Amid higher demand freight car builders increase output of freight cars, and rates continue to grow
The source of data on sale of the rolling stock and rent rates – the magazine “Rolling Stock”
In March 2017 the sale of freight cars made by plants of the CIS countries amounted to 5 746 units. (of that number 3.9 thsd. units – are gondola cars) that is by 2.6 times higher than the results of March 2016 (2 157 units) and by 16% more, than in February 2017.
At the same time, the output of freight cars exceeded their write-off which number amounted to 3.3 thsd. units in March. (of that number – 1.8 thsd. units are gondola cars).
The rolling stock commercially suitable to be operated – 986 thsd. units. As of the beginning of April faulty rolling stock fleet – 79 thsd.units, surplus – 62 thsd. units. (of that number – 4 thsd. units are gondola cars).
In March the cost of lease of gondola cars, set on standard bogies 18-100 and its analogs, grew up to 1 225 rub/day, in April the growth continued. According to the expectations of participants of the market, the rate can increase on average by 10-15% by June, and later on it will be corrected amid balancing of the fleet. According to the CEO of “Infoline-Analitika” Mikhail Burmistrov the growth of purchases of gondola cars along with the decrease of write-off rent rates and profitability decrease is inevitable. There is a distortion in this segment, the expert points out, generally new generation freight cars are being purchased, but the buyers are unwilling to operate the cars for the transportation of some freights or on some routes (for crushed stone or clamshell unloading in ports). According to Federal Freight Company (FFC), shortage of freight cars is leveled, there will be a correction of rates, and the main emphasis in the competitive fight will be put on the comprehensiveness of services. However, according to the calculations of the Institute for the study of problems of railway transport, one should not wait for the rate drop so far – in case of freight base and distance growth the rate will reach 2 thsd. rub/day until the end of the year.
At the same time, according to the assessment made by Salman Babayev, Vice-President of JSC Russian Railways RZD, there is no general deficit of freight cars, but there are risks that local deficit might occur due to the growth of freight traffic and increase in freight turnover. In particular, it is planned to ship more coal, mineral fertilizers, timber freights and grain for export. “Loading volume during the peak period of 2017 is expected at the level of 3.5 mln t a day. In order to cope with such volume it will be required to deliver 443 thsd. gondola cars. It means that the situation in which it is required to provide consignors with this rolling stock can become complicated in the summer”.
Leysana Korobeynikova, Senior Analyst
