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upstream output recovered slightly and yet managed to destock. Following seven consecutive months of decline, 1Q20 diamond output was flat y/y at 33.3mnct, on our numbers, as the slight increase in output by majors (Alrosa and De Beers) and a few smaller players was offset by the decline at Argyle. Global sales were down 1% y/y and miners were able to decrease stocks in 1Q20 (normal seasonal destocking). However, at 59.5mnct, miners’ stocks remain at historical highs (Figures 9-11). 2020F output fall might exceed 10%. However, stable output is temporary, as COVID-19 started to spread into major mining areas in April. Since the beginning of April, we estimate that more than 40mnct of output (annualised) has been to a greater or lesser extent and duration affected by the COVID-19 lockdowns. Although the actual loss of output during the lockdowns might only account for the mid-to-high single digits of global diamond supply, De Beers and Alrosa have already announced curtailments of 8.2mnct in 2020, while a number of small mines might not reopen even after the COVID-19 restrictions have been lifted due to weak demand (meaning an additional 8-10mnct loss). Given the current state of the market, we see the 2020F output loss exceeding 10% y/y, which would be the second largest fall (after the -26% y/y during the Global Financial Crisis). As such, COVID-19 could indirectly contribute to further market consolidation in the upstream. 2Q20 upstream sales might at least halve y/y.
9.1.12 Transport sector news
In April, railway cargo volumes fell another 6% y/y to 101mnt. Of the roughly 6mnt lost, about 3mnt was coal (-11% y/y, 28mnt), 2mnt was oil products (-10% y/y, 17mnt) and another 2mnt was metallurgical cargos (-9% y/y, 19mnt). Only grain volumes were up, adding 1mnt (+82% y/y, 2mnt).
In the absence of demand, gondolas lease rates fell 9% m/m to RUB1,000/day, while oil tank rates fell 9% m/m to RUB1,025/day. The oil segment, which has until recently been stable, is also in danger now, say analysts: with falling prices on oil products, they expect increasing pressure on transportation prices.
For May, RZD sees a 5% y/y decline in total volumes. With economies locked down across the world, analysts do not expect support for the industry in the coming month.
Coal. In April, coal volumes fell 11% y/y to 28mnt. Coal prices dived below the profitable level: European CIF ARA traded at $45/t (vs. $50/t breakeven) and Eastern FOB Newcastle at $60/t (vs. $60/t). However, May started off even worse, with European prices at $38/t and Eastern at $49/t.
Oil & oil products. The tank cars segment was down 10% y/y to 17mnt. While volumes continue to shift from rail to pipe, additional pressure came from the low demand for oil and oil products on the back of the coronavirus outbreak. We think this is the reason for the 9% m/m fall in tank lease rates, which is likely to continue further.
Metals. In April, metallurgical cargo volumes decreased 9% y/y to 19mnt. The locomotive of this decline was ferrous metals, which lost 14% y/y. The main reason was the drop in economic activity caused by quarantine measures.
Cost of repairs. Expenses for spare parts and repairs were around
108 RUSSIA Country Report June 2020 www.intellinews.com
