Page 100 - RPTRusFeb17

expect a 4-5% y/y recovery in domestic steel demand.
9.1.11 Transport sector news
Rail transportation volumes and cargo turnover increased 0.9% y/y and 2.2% y/y in February , respectively. Although the growth rates were seemingly not that impressive at first glance (compared with the 6.7% y/y and 11% y/y surges in January), adjusted for the number of days, average daily volumes (ADV) and turnover increased 4.5% y/y and 5.9% y/y, respectively, in February.
Coal, the chief cargo, was among the key drivers (+8.3% y/y in February/+12.2% y/y in ADV), oil and oil products saw some stabilisation in volumes (-2% y/y/+1.5% y/y in ADV) for the second month. While the gondola market keeps improving, we view the chief risk for Globaltrans this year being the weak tank car business, where volumes switching to pipes is a major threat.
Coal volumes increased 8% y/y in February, which implies a 12% increase in average daily volumes. The demand for coal domestically was again supported by the cold weather in Russia, which affects consumption of thermal coal for electricity generation. While global prices remain strong, they keep supporting export supplies from Russian coal producers.
Oil and oil products. After the long-lasting weakness since mid-2015, the segment showed some stabilisation in volumes in January and February. Overall monthly volumes were 2% lower y/y in February, while ADV was 1.5% higher y/y (January volumes were 1.4% higher y/y).
Building materials . Building materials have had a roller-coaster performance in recent months. After they started to fall in 2H16, there was a 9% y/y spike in January, followed by a 9.2% y/y drop in February (-5.9% y/y in ADV).
Metals and others . Metallurgical cargos saw flattish overall volumes in February compared with last year, but they grew 3.7% y/y on a daily basis. Both iron ore and ferrous metals showed similar trends: volumes were down 1.2% y/y and 1.8% y/y, respectively in February (+2.3% and +1.8% y/y in ADV). Grain was 11% weaker y/y (-7.9% in ADV), but on the high base of last year, while vs. 2015 grain volumes were 7% higher. Fertilisers were 4.7% y/y higher in February (+8.4% in ADV).
Cargo. The recent trends on the rail market are all supportive for the gondola business. With strong transportation volumes of gondola-moved cargos in February (+6.1% y/y in ADV), the lease rates for gondolas have breached RUB 1,000/day. For the tank car business, however, we remain cautious on the segment’s volumes and profitability. For 2017, we expect flat volumes of oil products and a further switch to pipelines would trim volumes from railway transport. That could exacerbate the surplus on the market and push tariffs down.
The construction cost of the Moscow-Kazan high-speed railway is estimated at RUB1.3 trillion (€21.2bn), F irst Vice President of Russian Railways Alexander Misharin was quoted as saying by TASS on February 28. As well as connecting the two cities, the rail link is to be the backbone of an enhanced network of rail links from China to to the Russian capital. "We see now the total project value does not exceed the price stated in the pre-investment
100 RUSSIA Country Report February 2017 www.intellinews.com