Overview of the Russian railway market: results of work in 2015 and what the future holds for 2016
Freight turnover at a record-breaking high level
In December 2015 loading amounted to 104.3 mln tons (+1.1%). Volume of loading for the whole year 2015 is lower by 1% (1 214.5 mln tons) than figures of 2014.
The transportation of coal (+6.9%), construction materials (+2.2%), iron ore (+3.4%), grain (+5.0%) and mineral fertilizers (+14.6%) increased compared to last year. The loading of oil and oil products (-2.6%), ferrous metals (-6.2%), cement (-11.8%) and non-ferrous metals scrap (-35.7%) decreased.
Freight turnover in December 2015 broke the fifteen years’ record, having amounted to 201.9 bln tons*km (+1.6% compared to December 2014). Freight turnover of 2015 increased by 0.2% (2 304.3 bln tons*km) compared to 2014.
Coal: key driver of growth
In December loading of coal on the Russian Railways’ network increased by 6.9 % compared to last year’s level and amounted to 30.9 mln tons, having set a record of transportations of the month for the last 15 years. A total of 323.3 mln tons of coal were transported by rail during 2015, and that is by 2.5% higher than the level of 2014.
In December 2015 the mining of coal was lower (by 1.6% according to RF Ministry of Energy and by 1.5% according to Rosstat) than last year’s level, while the volume of mining increased for the whole 2015 by 3.7% by 4.5% accordingly compared to 2014.
In December the domestic traffic increased by 1.9% and export traffic decreased by 8.2%. Freight traffic increased to South Korea (by 5 times), to the Ukraine (by 2 times), to India (there were no deliveries to this country last year), to Japan (+5.6%) to Poland (by a third).
The growth of export to the Ukraine is caused by satisfaction of the pent-up demand due to the suspension of coal deliveries at the end of November 2015 followed by their recommencement in December.
Coal supplies to the market of the Asia-Pacific region can increase due to the replenishment of own harbor fleet with the biggest Stevedoring Company “Vostochny Port”. When a new tug with the reinforced ice class is put into operation the harbor fleet of the stevedore will be able to carry out two more mooring operations per day. In addition, the completion of the construction of the third stage of the coal-loading complex of “Vostochny port” is scheduled to take place in January 2017, this will allow to increase the stevedore through capacity.
Chinese authorities plan to close 4.3 thous. coal mines with the capacity of 700 mln tons in the course of 2016-2018. Up to 30 bln yuan ($4.57 bln) are to be spent for this purpose. Experts believe that closure of excessive capacities in China may lead to both coal price rise, and increase of export freight traffic of the Russian raw materials.
As a result of a set of favorable factors for export of the Russian coal: devaluation of ruble, a trend for closure of unprofitable coal enterprises, entry into the Indian market, transportations of coal can remain at the high level, and from the second half of the year 2016 — to demonstrate growth.
Oil and oil products: drop in rail freight traffic amid extraction increase
In December the loading of oil and oil products on the Russian Railways’ network decreased by 2.6% relative to last year’s level and amounted to 22.2 mln tons. A total of 251.2 mln tons of oil and oil products were transported by rail during 2015, and that figure is by 2.1% lower than the level of 2014.
In December 2015 extraction of oil grew by 1.5% (according to RF Ministry of Energy) and by 2.2% (according to Rosstat) compared to last year’s level, while the extraction for the whole of 2015 increased by 1.3% compared to 2014, according to both sources.
In December domestic transportation of oil and oil products decreased by 7% compared to December 2014, and export transportation – by 2.5%. At the same time several countries have increased export flows: Belarus (by 3.5 times), Italy (+4%), Finland (by 1.5 times) and Korea (+20%).
According to experts, pipe and other infrastructure projects may be kept on ice due to the continuing drop in oil prices. In this case it is possible to switch additional volumes on railway transport. Consequently a probability of stabilization of volumes of oil and oil products traffic by rail is forecast.
Construction materials and cement: multidirectional dynamics remains
In December, the loading of construction materials on the Russian Railways’ network grew by 2.2% as compared to last year’s level and amounted to 9.4 mln tons. At the same time, the loading of cement decreased by 11.8% (1.5 mln tons). On the whole, for 2015 the dynamics is negative: 130.7 mln tons of construction materials and 28.6 mln tons of cement were transported by rail, this figure is by 7.4%, and 11.1% comparatively, lower than the level of 2014.
The transportation of construction materials to the regions: Novgorod (by 3 times), Tver (by 3 times), Voronezh (by 2.5 times), Orenburg (by 2 times) and Perm (by 1.7 times) regions, as well as to Khanty-Mansi Autonomous Okrug (+25%), increased.
According to Rosstat, 83.8 mln m2 of housing were constructed during 2015, this figure is by 0.5% less, than in 2014. In the middle of January it became known, that there were no plans to extend subsidized interest rates on preferential housing mortgage lending. Nevertheless, other measures of developer sector backing are thought through in the government. According to Mikhail Men, the Head of the Ministry of Construction, subsidizing of the initial payment may become one of such measures.
In late December the Government of the Russian Federation extended the licensing of gravel and crushed stone import, till June 30th 2016, including from the Ukraine; previously up to 95% of import freight traffic was from that country. This measure will become a limiting factor of crushed stone import development.
Consequently, the current dynamics will maintain in the segment of transportation of construction freight and cement thanks to backing from the state. A noticeable growth in the field will be no earlier than 2017-2018.
Iron and manganese ore: domestic traffic continues to grow amid a considerable fall in export
In December, the loading of ore on the Russian Railways’ network increased by 3.4% relative to last year’s level and amounted to 9.2 mln tons. A total of 109.0 mln tons of ore were transported by rail during 2015, and that figure is by 0.4% higher than the level of 2014.
According to Rosstat, mining of the Russian iron ore amounted to 72.7 mln tons (+0.4% compared to the similar period of last year) for 2015. Compared to the level of December 2014 mining of ore decreased by 1.0%.
In December, the domestic traffic increased by 7.4% compared to last year’s level and export traffic decreased by 19%. Main drop in export is to China (by 2 times), Slovakia (by 2 times). The deliveries to Spain and Poland practically stopped.
Decrease in deliveries to China is caused by both considerable reserves of ore in the Chinese ports, and the Chinese new year’s eve, as industrial enterprises stop their operation during its celebration. According to the assessment of Australia & New Zealand Banking Group Ltd (ANZ), reserves of iron ore raw materials in the Chinese ports have been steadily growing and will exceed 100 mln tons point in February 2016.
Consequently, in the short term, loading of ore is likely to decrease due to the reduction of domestic production, as well as due to the complicated environment of the global market.
Ferrous metals: drop in loading amid a complicated situation in the global market
In December, the loading of ferrous metals on the Russian Railways’ network decreased by 6.2% relative to last year’s level and amounted to 6.0 mln tons. A total of 71.4 mln tons of ferrous metals were transported by rail during 2015, and that figure is by 0.6% lower than the level of 2014.
In December 2015 the USA, Kazakhstan, Italy and Turkmenistan reduced, by two times, compared to last year’s level, purchases from Russia.
According to Rosstat, during 2015 metallurgic enterprises of the Russian Federation lowered their production volumes: 69.4 mln tons (-1.8% compared to last year’s level) of steel and 60.3 mln tons (-1.5%) of finished rolled ferrous metal products. At the same time, the output of steel products has been growing since the beginning of the year: during 2015 iron smelting increased by 4.4% up to 53.7 mln tons, and the production of steel pipes – by 1.2% up to 11.4 mln tons.
In February this year the Ministry of Economy of the Republic of Turkey will make the decision on the size of anti-dumping duties for the Russian exporters which usually correspond to the size of the calculated margin of dumping (according to the Ministry estimation, to 13.66%).
In the mid-term prospect the reduction of steel product traffic is likely to happen due to a set of adverse factors: low prices for rolled metal products and protective measures against the Russian products in the world market, as well as due to the decrease in demand within the country (in mechanical engineering, automobile and construction industries).
Grain and milled grain products: high export potential remains
In December the loading of grain and milled grain products on the Russian Railways’ network increased by 5.0% compared to last year’s level and amounted to 2.1 mln tons. A total of 18.7 mln tons of grain were transported by rail during 2015 and that figure is by 2.7% higher than the level of 2014.
Meanwhile in December 2015 domestic rail traffic turned out to be by 9.2% higher than the last year’s level, and export rail traffic decreased by 9.4%.
Main drop was recorded in rail traffic to Saudi Arabia (by 2 times) and Azerbaijan (by a third). At the same time deliveries of grain-crops to Yemen (by 1.8 times) and Israel (by a third) increased.
The Ministry of agriculture of Russia directed proposals on export duty on wheat to the Government. Government of the Russian Federation confirmed the intention to lower them or even zero out. The decision regarding this issue should be taken at the end of January.
In the Ministry of agriculture of Russia they consider the prospect of the Russian grain deliveries to China in the volume up to 1 mln tons per annum feasible, starting from 2017. In 2016 it is planned to supply about 300 thous. tons.
As of January 19th, 2016 the following amount of the Russian grain was purchased on a tender basis: with delivery in January 2016 — about 586 thous. tons, in February — 345 thous. tons, in March — 405 thous. tons, in April-May — up to 430 thous. tons.
Kazakhstan once again closed its market for the Russian grain-carriers. The conventional ban on the admission to the country of foreign empty railcars of this type was in effect since January 5th.
Therefore, it is expected that the current high level of grain freight rail traffic and big export potential due to favorable conditions for the Russian producers on the global market will maintain. Having said that, export and transit grain traffic may decrease from January due to the ban from Kazakhstan.
Chemical and mineral fertilizers: export is boosting traffic
In December the loading of fertilizers on the Russian Railways’ network increased by 14.6% compared to last year’s level and amounted to 4.7 mln tons, having set a new record in fertilizers’ traffic in December over the last 10 years. A total of 51.4 mln tons of fertilizers were transported by rail during 2015, and that figure is by 4.4% higher than last year’s level.
The growth in loading is due to the increase by 12% and 8% of domestic and export traffic respectively. The USA (by 2 times), China (+7.5%), as well as Canada and the United Arab Emirates increased the deliveries of fertilizers from Russia (there were no deliveries to these countries last year).
Growth of domestic fertilizers traffic is caused, among other things, by an increase in sowing area up to 79 mln ha in 2016. This figure is by 350 thous. hectares more than last year’s indicators. Shipments of mineral fertilizers to landowners by the season of spring field works of 2016 amounted to 5 469 thous. tons, and that figure is by 13% higher compared to the similar period of 2014.
The government controls domestic price policy on mineral fertilizers. The Ministry of Agriculture and the Ministry of Industry are currently dealing with producers of mineral fertilizers in terms of stabilization of prices, the agreement in this regard has to be signed soon.
At the same time the capacities for mineral fertilizers production are building up too. Ishim (the Tyumen Region): the plant producing mineral fertilizers mixtures with a production capacity about 170 thous. tons of fertilizers per annum was launched there in January.
The devaluation of ruble provided for the stable position of the Russian companies in the world market of mineral fertilizers, this position will be contributing to export traffic keeping stable. Domestic consumption will maintain if the government backs agro-industrial complex as well as if the plans for the increase in sowing area are implemented in 2016.
Rolling stock market can attain balance in 2016
The source of data on disposal of and write-off of rolling stock is the magazine “Rolling Stock Market”.
In December 2015 the sale of railcars made by plants of the CIS countries amounted to 3,752 units, and it is by 35% higher than the figures of November 2015 and by 10% lower the data of December 2014.
By December 2014 the drop in sales in the segment of standard railcars operating on bogies 18-100 and on its analogues amounted to 20%, while in the segment of innovative rolling stock sales increased by 1%.
Following the results of 2015, the write-off of an outdated rolling stock amounted to 100 thous. units, and that figure outstripped the indicators of 2014 by more than 2 times. According to experts, the scope of write-offs will remain at the same level in 2016.
The number of railcars in faulty rolling stock fleet amounted to 117 thous. units as of the end of December. The rolling stock, commercially suitable to be utilized on the Russian Railways’ network, is about 1,033 thous. railcars, the real surplus of the fleet — 81 thous. units (among them – 11 thous. gondolas).
Operational use of new generation railcars still demonstrates high efficiency of traffic. According to statistics of the operational use of the fleet applying Barber bogie, average freight turnover per one railcar with increased axle load contributed to about 446 thous. tons*km in December (+10% compared to November 2015), while per 1 standard type railcar this figure was 236 thous. tons*km.
From January 1st 2016 the prohibition of modernization with the extension of railcars service life was introduced, apart from railway rolling stock, intended to be used on railways (automatic-discharge hopper cars, flat cars for tanks), as well as specialized railcars (tanks for transportation of treacle, yellow phosphorous, wine materials, heptyl, amyl, acetic acid, toxic chemicals, alkyl benzene sulphonic acid, mélange, milk, polyvinylchloride, caprolactam, superphosphoric acid, sulphanole, refrigerator cars, thermos cars, ice boxes, diesel electric cars, well cars).
The prohibition could have a serious impact on the market. According to the Minister of industry and trade D. Manturov, one of the consequences of this decision will be the increase by 40-45 thous. units in production of cars in 2016.
Thus, according to the company’s estimate, the balance of the Russian fleet can be reached already in 2016-2017. And separate segments, for example, gondolas, will leave a surplus state in the summer of 2016 amid seasonal growth of volumes of transportations and write-offs.
Leysana Korobeynikova, Senior Analyst
