Page 106 - RusRPTApr20

Cost of repairs. Expenses for spare parts and repairs were at RUB580/day in March, down 5% YTD and 12% above the level of last year. We believe that these costs set a minimum level to, which gondola lease rates might fall. We expect RUB650-700/day lease rates by YE20. Falling repair costs are a downside risks to our forecasts.
Railcars. The gondolas fleet increased by 2,667 cars in February, implying a 1% (5,233 cars) YTD expansion to 564,891 cars. The oil tanks fleet was stable at 178,912 cars.
Coronavirus impact. Around 8% of Russian railway transported coal, 6% of iron ore, and 45% of railway timber cargos are exported to China. Given that China’s February PMI fell to 35.7, that might translate into a decline in demand, creating risks for the Russian railway industry as well.
Outlook. Slowdown in world economic activity puts pressure on cargos volumes. Demand for coal in Europe evaporates, and Russian mines reduce their production by 9-10% y/y. As a result, we see total railway transported volumes falling further as well as demand for gondolas, while unprecedented number of discounts given by RZD might support.
● Trains
Railway volumes fell 5% y/y in January to 100mnt, worse than the 3% y/y decline expected by Russian Railways (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 RUB1,350/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% m/m, to RUB1,100/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.
106 RUSSIA Country Report April 2020 www.intellinews.com