Loading was reducing amid decrease in gondolas sales
In October 2016 loading amounted to 103.4 mln t (-3.3% compared to the same period of last year).
First of all, transportation in gondolas saw decrease in: coal (-4.4%), construction materials (-11.8%), iron ore (-5.3%), ferrous metals (-1.7%). In addition, loading of timber freights decreased as well (-3.2%), cement (-14.8%) and grain (-9.5%).
Transportations of oil and oil products (+0.5%), fertilizers (+2.3%), non-ferrous metals (+5.9%) and scrap metal (+6.7%) increased.
Freight turnover in October 2016 amounted to 202.5 bln t-km (+1.8%), having set a new freight traffic record for this month. At the same time, despite decrease by 8% in loading in domestic directions, export flows continued to increase (+3%).
Coal: there are still not enough gondolas
In October loading of coal on the Russian Railways’ network decreased by 4.4% compared to last year’s level and amounted to 28 mln t. A total of 268.5 mln t of coal was transported by rail since the beginning of 2016 that is by 1.9% higher than the level of 2015.
Mining of coal in October decreased by 0.3% relative to last year’s level, according to Rosstat, and by 4.4% according to the Ministry of Energy. The reason for October’s decrease in coal mining is incomplete transportation of coal in September due to the lack of gondolas. Having said that, the Ministry of Energy predicts an increase by 4.8% in mining following the results of the year, and export growth – by 5.7%.
Domestic freight traffic of coal decreased by almost 15%, since export dispatches were again given a high priority (growth by 7%). Coal prices growth in the world market (88.2 $/t (CIF ARA) by the middle of November) and, as a result, increased marginality of export freight traffic provided for the increase in freight flow to the EU countries (+7%), China (+40%), Japan (+6%) and Great Britain (+5%).
Chinese government cancelled a part of restrictions, which had been in effect from March in the local coal mines, due to coal prices increase and decrease in Chinese mining. This made it possible for the companies to operate 330 days in the course of the year, instead of previously established 276 days. The limitations, which had been in effect, led to a decrease by 11% in domestic production of coal compared to the same period last year for 10 months of 2016, while import increased by 18.5% - up to 200 mln t.
Experts believe, that the new measures will not lead to coal price reduction in 2017. The price will still be high because the Chinese government will try to maintain positive cash flows for the majority of mining enterprises and profitability for housing and communal services will be kept as well. At the same time, experts expect coal price fluctuations so far as the Chinese policy will be changing.
In the short term coal transportation recovery is expected so far as the fleet of gondolas will be balanced due to the seasonal decline in construction materials traffic.
Oil and oil products: loading is recovered up to previous year level
In October the loading of oil and oil products on the Russian Railways’ network increased by 0.3% relative to last year’s level and amounted to 19.4 mln t. The reason for such increase is explained by the low base effect of last year: October 2015 saw the beginning of freight traffic decline. A total of 194.2 mln t of oil freight was transported by rail since the beginning of 2016, which is by 6.7% lower than the level of 2015.
Oil production in October was higher by 3.9% than last year’s level according to the Ministry of Energy, and by 2.4% higher according to Rosstat. Primary oil refining increased by 7.5% and by 9.0% respectively.
Domestic freight traffic decreased by 1.6%, and export freight traffic increased by 1.2%. Export freight traffic increased in the following directions: to Italy (+15%), China (+40%) and Kazakhstan (+80%).
According to October forecast made by the Ministry of Energy of Russia, oil production in 2016 will reach 544 mln t (+2.0% compared to 2015), export will increase by 5.0%.
Despite the October growth, there are still no real signs for oil and oil products transportation recovery. In the medium term freight traffic will remain at the current low level.
Construction materials and cement: record drop in loading
In October the loading of construction materials on the Russian Railways’ network dropped to a minimum value over the last 15 years for this month – down to 12.0 mln t (-12% compared to October 2015). Loading of cement was at a record low level for October as well – 2.3 mln t (-15%). A total of 123.1 mln t of construction materials (+11.3%) and 23.7 mln t of cement (-6.3%) was transported by rail since the beginning of the year.
The supplies to Moscow and the Moscow Region saw the main drop (about 25%), the supplies to the Arkhangelsk, the Kaluga and the Nizhny Novgorod Regions decreased by almost two times.
In October 2016 production of cement in this country decreased by 13.4% compared to October 2015, production of reinforced concreted products and structures – by 13.6%, while the mining of non-metallic construction materials increased by 5.0%.
6.1 mln m2 of housing were built in the Russian Federation in October, which is by 13% less, than in October 2015, and by 10% lower than the value of September 2016. The amount of construction works in October in the comparable prices is lower than last year’s level by 0.8% whereas the fall in 9 months of the current year amounted to 5%, but it is still prematurely to talk of essential changes in the construction field.
Multidirectional dynamics of mining of non-metallic construction materials and their rail traffic is largely due to the outflow of part of freights to alternative types of transport due to the lack of gondolas. The reason is the switching of gondolas to transportation of export supplies of coal amid the coal price recovery.
In the short term a low level of construction materials traffic is still expected. But so far as the investment climate in Russia is improving, accompanied with potential new infrastructure projects and so far as the fleet of gondolas will be balanced the traffic of construction freights may recover.
Ferrous metals: non-seasonal increase in demand in the domestic market is expected
In October, loading of ferrous metals on the Russian Railways’ network decreased by 1.7% relative to last year’s level and amounted to 5.8 mln t. A total of 58.6 mln t of ferrous metals was transported by rail, that is by 2.1% lower than level of 2015.
Main decrease in export relative to last year occurred due to a twofold decrease in supplies to Turkey and the US, at that the supplies to Italy (by 10 times), as well as to Finland and Saudi Arabia (there were almost no supplies to that country) increased.
According to Rosstat, in October the production of steel increased by 2.0%, the rolling of ferrous metals – by 0.3%, and production of cast iron decreased by 6.9% relative to 2015.
According to World Steel Association (WSA), 136.5 mln t of steel were made in 66 countries-members of Association in October, that figure is by 3.3% higher than the indicator of the same period of last year. Due to the fact that high growth rates are kept, the world steelmaking reached the last year’s schedule following the results of ten months, having completely eliminated the lagging behind of the first three quarters.
Despite statements made by China on its intention to make 100-150 mln t reduction of capacities of steelmaking by 2020 from the current level of 1.13 billion t, the last months saw world steelmaking substantial growth due to the Chinese production. In October the Chinese companies made by 4% more steel, than in October last year.
Due to the increase in prices for iron ore and the coking coal the Russian metallurgists planned essential increase in selling prices in the domestic market in December — for 3 thsd. ruble/t, while preserving the current price environment. In anticipation of prices increase a non-seasonal growth in demand for ferrous metals in the domestic market is likely to occur.
As a result the world market of ferrous metals remains in surplus that leads to ferrous metals prices decrease and hinders export sales of Russian products. In the short term an increase in ferrous metals transportation in domestic directions is probable.
Iron ore and manganese ore: multidirectional dynamics of internal and export freight traffic remains
In October loading of ore on the Russian Railways’ network decreased by 5.3% compared to last year’s level and amounted to 8.9 mln t. A total of 91.5 mln t of ore was transported by rail since the beginning of 2016 that is by 0.8% higher than the level of 2015.
According to Rosstat, mining of ore decreased by 0.6% in October. All combined ore mining increased by 0.7% compared to last year’s level, since the beginning of the year. At the same time domestic freight traffic decreased by 9%, and export traffic increased by 10%.
In October 2016 the main increase in export was to Poland (twofold growth) and to those countries, to which the supplies were not made last year: to the Netherlands, Italy, France and Egypt.
Non-seasonal increase in demand in the domestic market of ferrous metals will be a restraining factor for ferrous ore export growth, despite ferrous ore price increase. In the short term ferrous ore transportation will remain at the current level.
Grain and milled grain products: traffic decrease, despite a record harvest
In October loading of grain and milled grain products on the Russian Railways’ network decreased by 9.5% relative to last year’s level and amounted to 1.9 mln t. A total of 14.9 mln t of grain was transported by rail since the beginning of the year, which is by 1.9% higher than the level of 2015.
In October domestic freight traffic increased by 5% compared to last year’s level, and export freight traffic decreased by 30%.
Rail freight traffic decreased in the direction of Saudi Arabia (by 9 times), Azerbaijan (-30%) and Egypt (-20%). Supplies to Israel (by 2 times), Turkey (by 2 times) and India (there were almost no supplies to that country last year) increased.
According to the Ministry of agriculture, Russia can take up to 10% of world grain export this year, that will amount to about 35-40 mln t. However, so far the export of grain from Russia over July-October 2016 is less by 8% when compared to last year’s level, mainly due to drop in barley export.
According to experts, drop in export traffic is caused by instability of the ruble exchange rate and low prices in the world market, that’s why the manufacturers are reluctant to conclude agreements, expecting wheat prices increase. Besides, the quality of the Russian crops is at a disadvantage when compared with proposals of other exporting countries, which high harvest made competition tougher in the world market. Experts point out that in the Russian supplies there are high content of fine grains and low natural weight in some batches of barley that makes it impossible to use this product for food. This issue occurs in the Stavropol territory and the Krasnodar territory.
Therefore, the increase of export grain traffic can occur only as grain world prices rise.
Chemical and mineral fertilizers: freight traffic is at the maximum
In October the loading of fertilizers on the Russian Railways’ network increased by 2.3% compared to last year’s record level and amounted to 4.4 mln t. In October the loading of fertilizers on the Russian Railways’ network increased by 2.3% compared to last year’s record level and amounted to 4.4 mln t.
In October, according to Rosstat, the production of fertilizers increased by 6.7% compared to last year.
Brazil (+20%), Peru (by 2.3 times), India (by 2.2 times) and Belarus (by 4 times) increased fertilizers supplies from Russia.
In the medium term the transportation of mineral fertilizers can remain at the current high level due to a stable demand both on domestic, and export markets, as well as to grow so far as new capacities are commissioned.
Production growth amid increase in demand
The source of data on sale of the rolling stock - the magazine “Rolling Stock Market”.
In October 2016 the sale of freight cars made by plants of the CIS countries amounted to 4,502 units that is by 91% higher than the value of October 2015 and by 23% higher than the previous month value. It is the maximum level of monthly production since 2015.
Sales in the segment of new generation freight cars increased by 2.5 times compared to October 2015.
Efficiency of the operational use (average monthly freight turnover of the loaded car) of UWC innovative freight cars amounted to 476 thsd. t-km that is by 92% higher than the efficiency of outdated freight cars.
Write-off in October is still at a high level: 7.8 thsd. of freight cars (of which 4.7 thsd. are gondolas). A total write-off for 10 months of 2016 amounted to 98.8 thsd. freight cars (+16% compared to similar period of 2015).
The rolling stock commercially suitable to be utilized on the Russian Railways’ network decreased to 983 thsd. units. Faulty rolling stock fleet decreased to 86.8 thsd. freight car units as of the beginning of November. The real surplus of the fleet amounted to 70 thsd. units (of which gondolas – only 5 thsd. units).
RZD suggested further recalculating the tariff by 2% due to the fact that the speed of motion of the corresponding freight units increased; RZD also proposed a number of point changes of tariffs. However the Federal antimonopoly service did not back additional recalculation and suggested making a double decrease in export allowances to RZD tariffs, which now amount to 13.4%.
Leysana Korobeynikova, Senior Analyst