Page 92 - RusRPTMar20

components ​except for road (+12.3% y/y) and internal waterways (+19.4% y/y), both of, which likely benefited from warmer weather. As we wrote in our Railway Cargo Turnover of 3 February, railway turnover fell -5.1% y/y in January to 209bnt/km due to -11% y/y drop in coal volumes, the largest fall in ten years. Pipeline turnover shrank by the same amount.
Railway volumes fell 5% y/y in January to 100mnt, worse than the 3% y/y decline expected by RZD​. The reason for this sharp fall was the 11% y/y drop in coal volumes, the largest fall in ten years. While demand for coal has been weakening since 2019, the rate of its decline in January was amplified by the warm winter in Europe. As a result, gondola lease rates lost 7% m/m and stood at RUB 1,350/day. The oil tanks segment, which is more disciplined, kept its growing rates, despite the 4% y/y decrease in volumes. Oil tank lease rates added 7% MoM, to RUB 1,100/day. For February, RZD envisages another 5% drop in total volumes, which we think is a signal that the market has not yet reached the bottom.
Coal​. In January, coal volumes showed a rapid decline of 11% y/y, to 29mnt, which is the sharpest drop for the last ten years. Against the backdrop of the warm winter in Europe, western coal prices touched a four-year low of $48/t. Far Eastern coal prices halted their decline and were at $67/t, above the breakeven price of $60/t. However, export attractiveness in this direction is restrained by infrastructure limitations.
Oil & oil products​. Oil volumes lost 4% y/y, and stood at 20mnt. Despite RZD’s discounts for this type of cargo, volumes continue going into pipes.
Building materials​. Construction materials volumes grew 1% y/y, as they were loaded into gondolas freed from coal transportation.
Metals​. In January, metallurgical cargo volumes were flat y/y. The 2% y/y fall in ferrous metals and base metal ore was offset by the 2% growth in iron ore, which has been seeing a rebound in prices since November 2019.
Railcars​. The gondola fleet increased 1,434 cars in December, implying a 6% (31,969-car) YTD expansion to 559,658 cars. The oil tank fleet lost 44 cars to 178,652 in December. Scrappage is to continue in 2020, as the age of 8% of the total fleet exceeded 32 years. The prices for cars on the gondola and oil tank markets were flat m/m in December, remaining high at RUB 3.1-3.6mn.
Outlook​. In January, railway cargo volumes fell 5% y/y after the 2% contraction in December 2019. While RZD has already guided for another 5% drop in February, we think that red numbers could well continue to appear until at least April (given the high base effect of 1Q19). Another risk for volumes and demand for gondolas is coal producers’ lower production plans for 2020. In the disciplined oil segment, we see steady growth in oil tank lease rates amid fleet scrappage and falling volumes.
92​ RUSSIA Country Report​ March 2020 ​ ​www.intellinews.com