Page 116 - RusRPTMay20

In March, Russian railway transported cargos fell 6mnt (6% y/y) to 107mnt – the biggest fall in 7 years​. The rate of decline was the fastest since 2013. Coal volumes were 5mnt (14% y/y) lower at 29mnt, metallurgical and oil volumes each lost 1mnt, both to 20mnt (down 6% and 5%, respectively). We believe that the rapid volume decrease was caused by lower exports, as consumption dropped due to the spread of COVID-19. Given weak fundamentals, gondola lease rates subsided 8% m/m to RUB1,100/day. Oil tank rates were stable at RUB1,125/day. For April, RZD envisages a 5% y/y decline in total volumes. We note the downside risks of lower demand for cargos caused by the virus outbreak in Europe and Russia.
Coal. ​In March, coal volumes fell 14% y/y to 29mnt. We believe that already weak demand in Europe was further hurt by coronavirus, resulting in even lower export volumes. Coal prices were broadly unchanged YTD, with European CIF ARA trading at near $47/t (vs. the breakeven of $50/t) and Eastern FOB Newcastle at $66/t (vs. breakeven of $60/t).
Oil & oil products. ​Oil volumes lost 5% y/y to 20mnt. We also note how the virus caused lower export volumes and demand for products, e.g. jet fuel.
Metals. ​In March, metallurgical cargo volumes decreased 6% y/y as ferrous metals were 11% lower against a backdrop of falling Chinese prices and stalled European and Turkish markets.
Discounts. ​In March, RZD offered 13% discounts for coal exports through Baltic and South ports, and transit through Kazakhstan. To support volumes, the FAS might increase the maximum possible discounts amount from 13% to 99%.
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.
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 unpreceded number of discounts given by RZD might support.
116​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com