Last winter car building experts noted the howling success of both domestic and Ukrainian mechanical engineering companies reached in manufacture of the freight rolling stock. Concurrently, observers noted the market ‘overheating’ and high car prices. Some analysts forecasted that the market would be saturated quite soon and some reduction in the output volumes would follow. What are the actual January throughout June 2012 trends in this sector of the national economy?
Russia produced the most rail cars within CIS as compared with other republics. Plants manufactured 34,720 cars for the six months that 13.48% exceeded the capacity for the same period of the last year. Such growth is quite considerable for the mechanical engineering industry. Open Joint Stock Company “Research and Production Corporation “UralVagonZavod” (UVZ) that manufactured 13,852 cars for six months of this year and increased its performance by 8.26% remained a leader like before. OJSC “Altaivagon” that manufactured 3,230 cars and Promtractor-Vagon CJSC where 3,184 cars rolled off the assembly line are also among the three leaders. Small and medium manufacturers also considerably increased their output. E.g., JSC “Transmash”, Engels Town, managed to double the output in the I half-year of 2012: up to 1,134 cars vs. 672 units a year before.
The considerable car demand remained in full throughout the early six months of this year. As a result high prices for the new freight rolling stock were maintained. “Factory car prices relatively stabilized at the level of 2.2-2.3 mln rubles for gondola car (VAT excl.) during the last half-year. A downward trend of prices appeared in July. It relates primarily with the fact that freight forwarders expect reduction in the earning power after standardization of light running tariffs”, – Andrey Tsyganov, the Head of the Marketing and Analytical Survey Department, Brunswick Rail, told to The Transport.
This company believes that 10-15% average car price reduction can be expected until this November.
“In case of car demand saturation the price can fall even lower – by 20-25%. It is difficult now to closely predict the market saturation time but I am referring to late 2012 – early 2013”, – Andrey Tsyganov told.
Car building disproportions and problems that emerged in 2011 have remained unsolved by now. Analysts note like before that so far the bottleneck of the car building market is production of heavy castings, including truck bolsters and truck side frames rather than car assembly facilities. The practice shows this is a very capital intensive and time consuming manufacture: to launch a grass roots foundry takes at least five years. I would like to add that the foundry production is a mastery to the full extent and, as practice shows, the acceptable quality of products is very difficult to attain at new manufacturing facilities without experienced and gifted professionals. In principle, cars can be manufactured virtually without casting, widely using rolled steel and welding. The European countries act just this way, the most of bogies there have welded frames. However, such approach is not in line with the traditions of the domestic car building that took example by the North American designs and freight rolling stock manufacturing technology as early as since the 1930s. Domestic manufacturers and operation companies are not ready for European freight car manufacturing technologies at all now.
UVZ’ Chinese casting?
As is known, deficiency of the car casting is the critical factor limiting Russian car manufacturers’ capabilities for recent several years. Capabilities of domestic foundry companies are apparently inadequate. Certain hopes have been laid, in particular, on launching the foundry facilities at the Tikhvin Wagon Works. But the activities there are slow-paced. Purchase of castings from foreign manufacturers is the natural step under such conditions. Furthermore, the car casting from China has always deemed as having the best sales prospect in Russia. Now it seems the supposal have finally become a reality this year.
Early in May Oleg Deripaska, the General Director of Basic Element company with Machine-Building Company of Mordovia being a part of the Group signed a contract with NORINCO Chinese mechanical engineering corporation for purchase of casting sets for 15 ths. freight cars to be manufactured in Russia.
Early in July 2012 specialists from Chinese NORINCO delivered to their Russian partners from the Machine-Building Company of Mordovia initial 20 samples of truck side frames manufactured in accordance with the Russian technical documentation. These product certification activities have already started. In addition, the Chinese mechanical engineering company is going to commence manufacture of truck bolsters in the near future.
The importance of these events is difficult to overestimate. The car industry experts appreciate entrance of Chinese manufacturers’ casting to the domestic car building market. Firstly, this will enable to reduce the car casting deficiency and result in increase in Russian output of freight rolling stock. Secondly, the unchallenged influence of some domestic manufacturers on the market will be reduced, a competitive environment can occur in this mechanical engineering sector. If the competition takes place, the casting quality is to be improved in theory. Consumers will gain from that and train operation safety will be improved.
Alongside with that I should note that the Machine-Building Company of Mordovia fails to fit for the general auspicious picture of output ramp up. 2631 cars only were manufactured here for six months of this year that is much less than in the last year. The volume of output has fallen by 32.35%. The Machine-Building Company of Mordovia turned out to be a single one who reduced its output among the large and medium Russian manufacturers.
The long hoped-for giant
In January 2012 Vladimir Putin, the Chairman of the Government, inaugurated the manufacture of The Tikhvin Freight Car Building Plant CJSC (TVSZ). This new enterprise located in Leningrad Region is a part of ICT Group and was announced as one of the most state-of-the-art manufacturer in the industry. Usage of the state-of-the-art technology was announced to enable attainment of the lowest prime cost of car building in Russia.
However, it is known that in addition to the state-of-the-art technology output volumes should be quite large to attain the minimum prime cost. E.g., TVSZ is designed for the annual output of 13 ths. cars.
The worldwide practice shows that the process of reaching the design capacity by TVSZ-scale manufacturing facilities takes two to five years depending on the process complexity. In addition, an enterprise shall be entitled to start the full-scale manufacture and shipment of products to customers only after the mandatory certification by FBU “The Register of Certification of the Federal Railroad Transport” and issue of a rail product manufacturer’s identification number by the Directorate of the Railroad Transport Council of the CIS.
As TVSZ explained, the enterprise has already launched the full-scale manufacturing of freight cars and started shipping of serial products since June growing the production rate. So, 100 gondola cars with dump doors, 12-9761 model (69.5 ton carrying capacity, 88 m3 body space), were delivered to the operator – RVD-Service LLC – in July. A Certificate of Conformity of the 12-9761 model gondola car with the Russian railroad safety standards has been issued to TVSZ by FBO “RC FRT” for the pilot series of 15 ths. units; it will be valid until mid April 2015.
The foundry equipment for large and medium-size castings was started up in the framework of pre-commissioning also in July and major process setting-up and commence the casting certification procedure is scheduled to complete by the end of this year.
It is known that a few wrecks caused by poor quality of car casting occurred at The Russian Railways network early this year. When investigating the causes of these grievous accidents, most of the faulty parts were found out to be manufactured in Ukraine. It is clear, these accidents could not but impact on the Ukrainian car building, a considerable part of which is Russian export oriented.
Nevertheless, the Ukraine car building sector has demonstrated some increase in its performance. 24,926 freight cars were manufactured in Ukraine in the I half-year 2012 that 4.24% exceeded the last year performance. We can see there is some growth but more modest than in Russia.
Faulty side truck frames manufactured by PAO Azovmash were one of the key claims of the Russian party. “Our attitude is the following: if cars are operated in compliance with the developed specifications, there will be no troubles and accidents with them”, – stated Igor Karapeychik, the General Director of PAO Azovmash, during the roundtable arranged by Gudok this March. He was supported by Yuriy Serdyuk, the General Director of Azovmash’s subsidiary PAO AzovElectroStal, who also referred to the cars operational imperfection. Thus, the Ukrainian manufacturers not only refused to admit their fault but tried to shuffle off the responsibility to the aggrieved Russian party.
In all likelihood, they had analysed the market situation and decided that there would be no any grave consequences for Ukrainian manufacturers. Actually, it was so.
PAO Azovmash, for all that, has managed to maintain the same output that were reached last year. Whereas 7480 cars were built in Mariupol during the early six months of 2011, 7315 units were built from January throughout June this year. In other words, the decrease was less than 3%. At the same time, the pattern of products has changed. On the one hand, manufacture of oil and gasoline tank cars 39% decreased, on the other hand manufacture of special tank cars 3.4 times and gas tank cars 4 times increased. In addition, the plant manufactured 39% more gondola cars. In all appearances, such a satisfactory situation can be explained by the whateverism of the Russian market and PAO Azovmash’s supplies under contracts executed before.
Though the output has slightly reduced in physical terms, it has 8.1% increased in money terms and reached 4.6 bln hryvnyas. Thus, the enterprise has managed to raise prices of its products. At the same time, 84% of PAO Azovmash’s products are exported. Russia and Kazakhstan are the key consumers of the rolling stock manufactured there.
The listed facts show that PAO Azovmash has no any special economic incentives to improve both the quality of its products and car castings purchased from PAO AzovElectroStal.
PJSC “Kryukovsky Railway Car Building Works” has turned to be the second largest in Ukraine in terms of the rolling stock output. They commissioned 5,631 cars for the half-year, due to that the output of such type of products near 10% increased. In June 2012 representatives of Russian Federal State-Financed Entity “The Register of Certification of the Federal Railroad Transport” visited PJSC “Kryukovsky Railway Car Building Works” for inspection checkup of products to be supplied to our country and, respectively, certified in this Register. 33 types of products were inspected, including 12-783 model gondola cars, 19-758 model cement cars, and bogies of freight and passenger cars. The results of this field check were successful. In general, PJSC “Kryukovsky Railway Car Building Works” has attained the considerable success in diversification of its products during the recent years. In addition to the freight rolling stock, the plant manufactures locomotive traction passenger cars, metro trains, and has recently built the first Ukrainian high-speed electrical train. A line of manufactured freight cars is impressive. It is interesting to note that despite a rather large number of car models manufactured, new design options of the rolling stock manufactured at the enterprise have been continuously appeared.
So, e.g., the commission of the Council of Rolling Stock Plenipotentiary Specialists on the Railway Sector at its 53th meeting authorized operation in the inter-state communication of 19-7053-01, 19-7053-02, 19-7017-06, and 19-7017-05 model bunker cars manufactured by Kryukovsky works. Such cars can be used for transportation of grain and mineral fertilizers. Currently, the works manufacture 10 hopper car models developed by Kryukovsky works’ designers. In addition, the same authorization has been obtained for the 18-7055 model bogie.
A 19-7053-02 model grain car with the 116 m3 body volume can be exemplified as a new model of hopper. Its carrying capacity is 70.5 ton. A new 18-7055 design bogies with the 23.5 ton axle load are rolled underneath the cars.
PJSC “Kryukovsky Railway Car Building Works” has started the supply of a lot of 50 box cars, 11-738 model, to the Russian operator RVD-Service LLC since 25 May, 2012. This rolling stock type feature is the body volume increased up to 150 m3 and large door aperture width that makes loading by lift trucks easier.
JSC Stakhnovskiy Car Building Works also has had big problems with car castings, moreover these problems had begun long before the mentioned series of wrecks at the Russian Railways network. So, the works did not fulfil the rolling stock output plan as it failed to purchase the required quantity of car casting in 2011. In order to support its manufacture, the Ukrainian works purchased parts from CKD Hutna Gora, the Czech steelmaker, in 2011-12. Early in 2012 the annual supply of Czech parts was 450 car sets that provided 70% of castings required for the Stakhnovskiy Works. Czech casting supply has increased since this March. It is quite clear that the enterprise decided to reduce its dependence on the Ukrainian manufacturers’ casting as much as possible. This decision seems to consider as a proper one from the viewpoint of their product quality improvement. Such technical policy has already produced results.
The enterprise completed an order for 200 platforms, 13-935А-04 model, from the Latvian Railway during the early half of this year. These platforms are designed for transportation of high-capacity containers, wheeled equipment and piece freights. A platform can be transferred to 1435 mm track bogies.
The Stakhnovskiy Works manufactured 1920 cars for the total value of 3 mln rubles throughout January-June 2012. Gondola cars constitute the greatest part in the product range, namely 68%. Early this year the plans to manufacture 8,100 cars this year were announced but, taking into account the results of the early two quarters, it is very doubtful that the works will manage to approach such a figure. To compare with, the enterprise built 6,810 cars in 2011. However, it is difficult to say whether they will manage to reach such output in 2012.
In other CIS republics
Positively, Russia and Ukraine are the car building leaders among the CIS countries. However, other republics have also attempted to arrange their own car building. Probably, Belarus has been the most successful one in this business. 430 cars were manufactured in Belarus during the early six months last year, and as much as 1430 rolling stock units were assembled this year.
A SZAO Osipovichi Car Building Works Project to the total value of US$130 mln with gaining loans at the amount of US$55.3 mln from the European Reconstruction and Development Bank has been implemented in the republic. Approximately US$28 mln more are provided by The Belarusian Railways. As much as US$117 mln was used by this spring. Russian Grand-Express JSC is an owner of the plant owning 74% of the registered capital and The Belarusian Railways owning the remaining 26%. The first tank car was manufactured in Osipovichi in December, 2011. However, the manufacture is assembling in its nature so far.
Currently, the plant manufactures tank containers. This year 720 tank cars are planned to manufacture; The Belarusian Railways will be a purchaser. It is supposed that the plant annual capacity will be able to reach 2.5 ths. freight cars and 2 ths. tank containers after reaching the full production capacity. In addition to that, SZAO Osipovichi Car Building Works will repair the rolling stock up to 2 ths. cars annually.
Though this project is likely to be of great importance for Osipovichi Town and, probably, for entire Belarus, the proposed output is small and would hardly effect the general situation in the car building sector of the CIS countries.
Uzbekistan has also attempted to develop its own car building industry. Early in August 2012 the President of Uzbekistan approved the Feasibility Study of the production development project at the Foundry and Mechanical Plant being a subsidiary of The Uzbek Railways. It is proposed that the foundry capacity shall reach 25 ths. freight cars since2014. The required investment are supposed to amount to US$120.18 mln. A contract has been executed with Skinest Rail, an Estonean company known as a rolling stock operator, for supply of equipment to the total value of US$54.3 mln.
Currently, the Foundry and Mechanical Plant is a multi-product enterprise manufacturing freight box cars and gondola cars and repairs the rolling stock. 100 freight cars were manufactured in Uzbekistan throughout January to June.
Car building industry also exists in Kazakhstan among the Asian republics. Here 362 cars were manufactured during the last half-year. The output remained at the last year level.
Considering the intermediate outcomes, it should be noted that 61,414 cars were manufactured by car manufacturing companies in Russia and CIS during the I half-year of 2012 that, as mentioned above, considerably exceeds the products output a year ago. Thus, there are some grounds to suppose that, based on this year results, the attained large output will be at least maintained, and, maybe, even to exceed it а little.
What do we expect?
Mainly Russian plants have provided the growth: UVZ, Promtractor-Vagon CJSC, Structural Steel Plant JSC in Engels. “It’s too early to speak about the market saturation. If the car prices have been stabilized to some extent during the recent half-year (even a trend for reduction appeared), the car manufacture is at the steadily high level now. According to our estimates, the load of manufacturing facilities has exceeded 90% during the recent 12 months and 95% in some months”, – Andrey Tsyganov told.
It is known, the rolling stock market directly depends on the output and sales of the most common freights. The latter include coal, gas, oil, timber, grain, and mineral fertilizers. So far the global market conditions favour the domestic raw material producers; however, the situation in the world market has remained unstable for some recent years and it is very difficult to forecast. Naturally, these factors impact the car manufacture not straight away; therefore, even in case of unfavourable circumstances this year will be rather successful for the Russian car manufacturers. And it will be far more successful, if the Government decides to reject from transportation thousands of cars with the expired life, forbidding their overhaul with restoration.