Page 98 - RusRPTSept19

gondolas and high demand for coal transportation, now, as coal’s importance declines, construction materials have gained 1pp y/y to an 11% share of the cargo portfolio, rising 10% y/y to 12mnt in August.
Metals. The basket of metals cargos declined 3% y/y in August due to the lower production from Russian companies.
Railcars. The gondola fleet increased 3,909 cars in July, taking it to a YTD expansion of 13,155 (7% y/y), to 549,761 cars. The oil tanker market declined 106 cars to 175,824 cars in July. Prices on the gondola and oil tank markets were flat m/m in August, remaining high at RUB3.1-3.6mn.
Outlook. Despite some European coal price recovery in July and discounts provided by Russian Railways on European destinations, August did not change the established trends of falling coal volumes substituted by construction materials. Given natural gas prices (an alternative in power generation) remain at historically low levels, we do not expect coal price recovery in coming months. The gondola fleet continues to expand and might show a 7% increase for FY19. Coupled with the weak railway market, it creates downside risk for gondola lease rates, which have already started their way down. On the other hand, the tank car segment seems to have stabilised, so we do not expect much volatility here, with a steady increase in lease rates and further fleet scrappage.
● Trains
The lease rates for gondola wagons on Russian sport market declined by 16% in January-July 2019, Kommersant daily reported citing the data of the Electronic Trading Platform of Russian Railways.
The news, coupled with declining rates of cargo turnover, could have a negative effect on the railroad transportation players, such as Globaltrans that was previously praised for one of highest dividends in Russia.
"Due to the fact that Globaltrans generally utilizes long-term contracts, we expect the decline in gondola lease rates to have a somewhat muted impact on its 1H19 and 2H19 financials," Sberbank CIB commented on August 19.
Sberbank reminds that lease rates for gondolas have been in gradual decline since May, driven by a slump in global coal prices and estimated that the decline in rates was less pronounced at about 10%.
As for Globaltrans, Sberbank believes that "the market is already pricing in a quite negative medium-term scenario, which has made for a roughly 16% annualized dividend yield based on the guided payment in September." The bank reiterated the Hold recommendation on Globaltrans.
98 RUSSIA Country Report September 2019 www.intellinews.com