May: growth in loading of all key cargoes except for construction materials and cement
In May 2018 transportation volume growth continued: loading amounted to 110.3 million tons (+3.6% against the same period of last year), cargo turnover — 218.8 billion ton-km (+4.4%).
Transportation of coal (+6.1%), oil and oil products (+4.3%), iron and manganese ore (+3.1%), ferrous metals (+10.2%), fertilizers (+4.2%) and grain (+78.6%) is growing. At the same time, transportation of construction cargo (-5,6%) and cement (-3,7%) decreased.
Coal: high export potential persists
Coal loading in May increased by 6.1% as compared to last year and amounted to 31.2 million tons, setting a record for this month over the last 15 years. Since the beginning of 2018, a total of 156.8 million tons of coal were shipped by rail, which is 5% higher than in the same period of 2017.
In May, both domestic (+3.6%) and export (+5.6%) transportation increased. Poland and Germany increased the imports of Russian coal by 2.5 and 5.5 times, respectively, which is more than the other countries, and the increase in supplies to these countries amounted to over 500 thousand tons. In addition, supplies to Ukraine and Japan increased significantly by 40% and 8%, respectively, and amounted to over 250 thousand tons.
Despite the declarations to reduce the share of coal generation in the country from the current 80%, the government of Poland approved a strategy to develop new brown coal deposits to replace the existing quarries, which will be completely depleted by 2040.
Rolf Martin Schmitz, CEO of Germany's key power producer and the largest utility company RWE AG, declared that by 2030 Germany will not be able to completely stop using coal, despite the statements by politicians. According to Mr. Schmitz, premature refusal to produce coal will be very costly for the country.
Ukraine's dependence on Russian coal is not decreasing either. For the first five months of 2018 the cost of its import increased by 20.6% compared to the same period last year, while Kiev purchased 66.2% of total coal imports in Russia with a total cost of $826.7 million.
Russian coal still retains its attractiveness in the world market, which will lead to a further growth in coal transportation by rail, mainly due to an increase in export supply.
Oil and oil products: positive dynamics for the first time over the last 11 months
Loading of oil and oil products increased by 4.3% in May and amounted to 19.3 million tons. A total of 98.8 million tons of oil and oil products were shipped by rail since the beginning of 2018, which is 0.2% lower than in the same period of 2017.
According to Igor Romashov, Chairman of Transoil's Board of Directors, last year's decisions of the government - the long-term tariff programme, long-term tariffs, the “inflation minus 0.1%” mechanism for their adjustment — allowed railroad and oil companies to establish long-term relationships, which facilitated the negotiation process with the clients.
In addition to tariffs, railroad transportation of oil and oil products was influenced by changes in technical regulations: modernization of the industry with an increase in oil refining efficiency. Firstly, the production of fuel oil decreased, along with its transportation by railroad. Secondly, an improvement in quality of diesel fuel allowed to organize uniform supplies by pipeline transportation.
Despite the positive dynamics of May in the medium term accounted for by the development of pipeline transportation, loading of oil and oil products will continue to decline in the Russian Railways network, and the loading decrease rate will mainly depend on state regulation and the policy of Russian Railways.
Construction materials and cement: positive forecasts made at the beginning of the year have not yet materialized
Loading of construction materials decreased by 5.6% in May as compared to the same period last year and amounted to 11.9 million tons, and loading of cement — by 3.7%, amounting to 2.6 million tons. Since the beginning of 2018, a total of 51.9 million tons of construction materials and 9.2 million tons of cement were shipped by rail, which is 1.4% and 4.1% lower than in the same period of 2017.
According to Rosstat, housing commissioning was 3.5 million m2 in May, which is 18.4% lower than in May of 2017. As of now, this is the worst result over the last 5 years. At the same time, housing commissioning increased by 9.7% over the 5 months of 2018, as compared to the same period last year.
A number of experts are convinced that the decrease can be explained by a seasonal shift from the cold April to May. The total amount of construction works increased by 5.6% in May to reach the maximum figure over the last two years. As a result, the May dynamics of this indicator equaled the average monthly rates of 2015, which may indicate a revival of investment demand.
At the same time, the decrease in housing commissioning may be due to the fact that now there is a small number of projects at the final stage of construction that started at the end of 2014 - the beginning of 2015. Therefore, it is too early to declare a recession in the industry.
As for cement, according to Rosstat, within the 5 months of 2018 the output decreased by 3.5% compared to the same period last year, and the decrease in May was 3.0% compared to May 2017. The rail transportation decline rate is higher than the the decline rate of the output, which according to experts is due to a transition to road transportation of cement.
Despite the positive forecasts made at the beginning of the year, as well as the emerging construction industry recovery trends, there has been no positive dynamics in the rail transportation market so far.
Ferrous metals: increase in domestic demand stimulates transportation
Loading of ferrous metals increased by 10.2% in May as compared to the level of the previous year and amounted to 6.5 million tons. Since the beginning of 2018, a total of 33 million tons of ferrous metals have been shipped by rail, which is 11% higher than in the same period of 2017.
The increase in loading occurred in May due to both domestic (+20%) and export (+5%) transportation. The Russian market demonstrated an increase in the consumption of track grid (twice), steel feed (1.5 times) which accounted for almost no internal transportation last year. There was an increase of export shipments to Turkey (1.5 times), Mexico (1.5 times) and the USA (+20%).
Demand in the domestic market is maintained by infrastructure projects - RR repair works, as well as the construction of the Crimean bridge railway section and the Krasnodar railway bypass. The new 62 km line should be commissioned by the end of 2018. However, the implementation of project should not result in a decrease in the demand for metals, as the construction of the bridge across the Ob will start as early as in 2019 and will be the starting point for the construction of the “Northern Latitudinal Railway”.
As estimated by Dmitry Maksimov, Head of the Severstal Marketing Department, steel products also have a great potential when used in residential construction. The share of single-storey houses in Russia constructed using steel frames is 3%, and the share of multi-storey houses is 13%, while in the USA this figure is 70% and 65%, respectively.
In the medium term, railroad ferrous metal transportation will continue to grow against the background of increasing domestic demand.
Ore: record loading over the last 15 years
Ore loading reached a record level over the last 15 years in May and amounted to 9.9 million tons, which is 3.1% higher than the level of the previous year. Since the beginning of 2018, a total 46.8 million tons of ore were shipped by railroad, which is 3,7% higher than in the same period of 2017.
The positive dynamics in domestic transportation continued in May and increased by 3%, while exports rose to +10% against last May for the first time since the beginning of the year. The purchases of Russian ore by China and Italy increased by 1.5 times. In addition, supplies to Egypt and France increased substantially, whereas almost no Russian products were purchased by these countries last year.
A growth of cargo traffic to China has been forecasted - deliveries started in May from the newest enterprise of Nornickel of the Bystrinsky Mining and Processing Combine, which is only reaching its designed capacity (approximately 3 million tons of iron ore concentrate per year).
Against the background of commissioning new facilities, as well as the high demand from domestic metallurgists, the transportation of iron ore by rail is going to grow.
Forest cargo: growth of domestic transportation due to an increase in wood processing
Loading of timber cargo in May remained at the level of the previous year and amounted to 4.1 million tons. Since the beginning of 2018, a total of 19.6 million tons of timber cargo were shipped by railroad, which is 2.6% higher than in the same period of 2017.
Domestic shipments increased by 5%, while exports decreased by 2% due to a persisting decrease by 4% in shipments to China.
According to Konstantin Baranov, Head of the Russian Commodity and Transport Marketing Department of the Transport Service Centre, an increase in the loading on domestic routes is accounted for by an increased demand from large timber processing and pulp-and-paper mills, including ZAO Lesozavod 25, AO Arkhangelsk PPM and OOO Ustyansky Timber Company, which upgraded their capacities last year, as well as the Pestovo Timber Complex repeatedly commissioned in November 2017.
Experts attribute the decline in timber exports to a reduction in logging volumes and warehouse stocks due to unfavorable weather conditions in Eastern Siberia in 2018. At the same time, according to timber producers, Russian products are in good demand in foreign markets.
In the medium term, transportation of timber cargo by railroad will grow moderately with the development of the timber complex of the Russian Federation, return of favorable weather conditions, as well as saturation of the market with rolling stock.
Grain and milling products: another record loading over the last 15 years
Grain loading in May amounted to 2.5 million tons (+78.6% as compared to May of the previous year), setting a record for this month over the last 15 years. Since the beginning of 2018, a total of 12.3 million tons of grain were shipped by railroad, which is 51,8% higher than in the same period of 2017.
Domestic shipments increased by almost 20%, and export - by 2.5 times due to an increased volume of supplies to Egypt (3 times), Bangladesh (with almost no deliveries last year) and Turkey (2 times).
The increase in grain loading by railroad will be facilitated by the 7.1% discount set in June by Russian Railways to the tariffs for export shipments from stations located in the Voronezh, Orel, Tambov, Orenburg, Saratov, Novosibirsk, Omsk, Kursk, Lipetsk, Penza, Samara, Ulyanovsk and Kurgan Regions through Russian ports using their own rolling stock and containers. The reduction factor will be in effect from July 3 to December 31 of this year and will cover the transportation of wheat, rye, oats, barley, maize, rice, buckwheat, beans, peas, kidney beans, etc.
However, grain transportation may decrease in the future, as due to a drought in the southern regions of Russia and the shift of spring sowing in Siberia and Ural the Ministry of Agriculture lowered the grain harvest forecast in the new season to 100 million tons, but because of carryover stocks of grain, the decrease is likely to be smoothened, and transportation will remain at a high level.
Chemical and mineral fertilizers: new records
Loading of fertilizers amounted to 5.0 million tons in May (+4.2% compared to the previous May), setting a new record for this month. Since the beginning of 2018, a total of almost 25.3 million tons of fertilizers were shipped by railroad, which is 6.3% higher than in the same period of 2017.
At the same time, transportation via domestic routes increased by 3%, and export routes - by 5%. The main increase in foreign supplies is to Brazil (+20%) and Lithuania (+85%). The growth of supplies to Syria continues, although the did not buy fertilizers from the Russian Federation last year.
EuroChem announced the opening of a new blend production plant in Brazil as part of the further expansion of Fertilizantes Tocantins (FTO) subsidiary structure. A total of $17 million was invested in the establishment of the plant. By the end of 2018 it is expected it to produce 300 thousand tons of mineral fertilizers or about 15% of the total sales of FTO.
FosAgro Holding expects high activity in the domestic market in the 3rd quarter of 2018. At the same time, the Indian market is considered promising on the world stage. It is expected that this year the import of phosphate fertilizers to India will grow by more than 25%: from 4.0 million tons received in 2017 to 5.0-5.5 million tons.
In the medium term, rail transportation will grow against the background of increasing demand in the world market, as well as with the introduction of new capacities by Russian companies.
Demand for rolling stock varies significantly from segment to segment
The source of data on rolling stock sales and rental rates is the Rynok Podvizhnogo Sostava (The Rolling Stock Market) magazine.
The commercially usable fleet is 1,027 thousand units, while the defective fleet remains at a low level of about 53 thousand units at the beginning of June. As a result, the fleet surplus amounted to 49 thousand units, but remained completely absent in the segments of gondola cars and hoppers.
In May, the sales of cars by the CIS plants amounted to 6.5 thousand units, which is 68% higher than the results of May 2017 (3.8 thousand units). At the same time, 3.9 thousand cars were decommissioned, 1.2 thousand of which are tank cars.
At the beginning of June, the fleet of new generation cars of different manufacturers exceeded 107 thousand units.
Gondola cars: rate growth continues
The fleet of gondola cars in the Russian Railways network reached 501 thousand units, which is 5% higher than the level of last May.
At the same time, the output significantly exceeds the decommissioning rate. In May, the sales of gondola cars by the CIS plants amounted to 3.9 thousand units, while their decomissioning rate was only 0.6 thousand units.
Rental rates for standard gondola cars in June rose to 1,750 rubles per day. Decrease in the market is not yet expected.
Box cars: gradual recovery of demand
The fleet of box cars amounted to 55 thousand units in May 2018, which is 5% lower than the level of the previous year, whereas the surplus remained at the same level - about 3 thousand units - as compared to May 2017.
The turnover in box cars has undergone significant structural changes: the volume of aluminum and sugar has decreased by 15%, but the volume of automobiles (+80%), meal pellets (+60%), wheat (8 times), bean grains (7 times) and oil seeds (4 times) increased.
At present, box cars are in demand, which is a different situation as compared to the trend of the last few years. Cars with increased cubic capacity have the highest priority - their rental rates are 1.5 times higher than for the old models, reaching 1,500 rubles per day.
Oil-gasoline tanks: no demand in the segment
The fleet of oil-gasoline tanks amounted to 182 thousand units in May 2018, which is 3% lower than the level of the previous year, while the surplus reduced by half to 8 thousand cars as compared to May 2017.
However, in the nearest future, due to the launch of a number of pipeline capacities, the fleet is expected to release up to 8 thousand tanks, which could negatively affect the dynamics of rental rates, which stopped falling in the last several months and remained at the level of 650 rubles per day.Leysana Korobeynikova, Head of Analysis