Page 113 - RusRPTNov19

those for the Suez Canal, according to Russia’s Deputy Minister of the Far East and Arctic Development Alexander Krutikov. His ministry, together with Russian think-tank Skolkovo, is working on a project to create a state-run container ship operator. The company would cover the cost of any risks associated with transporting international cargoes via the Arctic’s icy waters, including possible delivery disruptions and higher insurance payments.
In September, total volumes transported via the railway network recovered to 106mnt (+1% y/y) after a series of weak months. Total cargo turnover gained 1% y/y and now stands at 213bn t-km, mainly due to the impressive 4% y/y increase in coal volumes spurred by the end of network repairs and Far East’s new coal terminal. Metallurgical cargos continued to decline, losing 4% y/y to 19mnt because of the weak export market. Gondola lease rates corrected down again and now stand at RUB1,700/day (-3% m/m), oil tank lease rates were flat m/m at RUB1,025/day. While the growth in coal volumes is supportive for gondola demand, we continue to be cautious on its prospects, as the coal market is still showing weakness.
Coal. In September, coal volumes rose 4% y/y to 30mnt, the first increase after five months of decline. We believe that the reason for this growth was the end of the summer repairs on the railways, coupled with the introduction of new capacities at Far East’s Vostochny port. While we expect this to support volumes in the short term, we still see risks from the diminishing demand for coal.
Oil & oil products. The tank car segment saw a decline of 3% y/y in September to 19mnt, as Transneft increased the capacity of its ESPO pipe.
Building materials. The growth rate of construction materials’ volumes slowed to 7% y/y, as the growth in coal volumes took away some gondolas.
Metals. Metallurgical cargos fell 4% y/y, with ferrous metals declining 13% y/y due to the i) increase in transportation to the more attractive Russian Far East, which leads to lower volumes, but higher turnover, and ii) the southern export market being less attractive than domestic sales.
Railcars. The gondola fleet increased 1,791 cars in August, taking it to a YTD expansion of 21,184 to 551,552 cars (+7% y/y). The oil tanker fleet rose 938 cars to 176,762 in August due to the transfer of oil tanks from Kazakhstan to Russia, while the total CIS market only saw a decline in the fleet. Prices on the gondola and oil tank markets were flat m/m in September, remaining high at RUB3.1-3.6mn.
Outlook. In September, railway transportation stopped its descent due to the increase in coal volumes. With the newly launched coal terminal and end of summer repairs, we might see upcoming positive numbers, which would create upbeat sentiment on the market. However, despite the short-term positives, we still envisage risks from the continuing decline in coal prices in both Europe and the Russian Far East, as well as the switch in Europe from coal to other energy sources, which also could reduce demand for gondolas.
● Trains
Russia’s mega high-speed rail project to link Moscow, St. Petersburg and Nizhny Novgorod is set to cost RUB2.3 trillion ($36bn), according to
113 RUSSIA Country Report November 2019 www.intellinews.o