Page 88 - RusRPTJuly18

9.1.12 Transport sector news
The pace of the rail industry growth remained close to 4% in May . Volumes were 3.6% higher y/y in May (+3.5% y/y in 5mo18) while cargo turnover added 4.4% y/y (+4.7% y/y). In gondolas, both coal and metals grew at 5% y/y, while the gondola fleet size is around 505k, which is still insufficient to satisfy demand.
The trends remain supportive for the segment, with gondola lease rates continuing to grow higher, to RUB 1,650-1,800/day. The YTD average rate of RUB 1,650/day remains above bankers assumptions of a RUB1,600/day average for the year, providing upside risks to financial forecasts for Globaltrans (Buy, 12-mo TP of $13.30).
The other good news is the first visible growth in oil and oil products (+4% y/y) in a while. If it continues for a longer period, that might help tanks’ lease rates to pick up from their lows of RUB600/day.
Coal . Despite the high base from last year, coal volumes rose 5% y/y in May, amid the supportive global price environment. The FOB Newcastle thermal coal price is at $94/t. Coal, which contributes almost 30% to Russia’s rail transfers, remains the major driver for gondola demand.
Oil & oil products . This cargo was in positive territory for the first time in a while, adding 4% y/y in May. The negative refining margin of around $7.5/t in May was to a greater extent generated on the domestic market, which likely caused oil refineries to boost volumes for export transfers.
Building materials . The cargo remains depressed, being down 6% y/y in May. Transport costs account for a much higher portion in the final price of building materials than for other cargos moved in gondolas, and so it is more sensitive to increases in gondola lease rates. The positive momentum in the latter thus put pressure on the demand for this type of cargo transfer.
Metals . Metallurgical cargos (+5% y/y) are strongly supported by high global prices, for both steel and iron ore. Ferrous metals was the chief gainer in May (+11% y/y), followed by iron ore (+4%).
Others . Grain transfers keep leading the race, adding close to 60% y/y in May and 52% y/y over 5mo18. Chemicals and fertilizers remain strong (+5% y/y).
Outlook . The 3-4% growth rate in rail volumes should hold in the coming months. Strong prices in coal and steels, as well as the upcoming high season for the rail market, might support the demand for gondolas as well as lease rates, which have reached new highs of RUB 1,650-1,800/day.
“We see the current trends implying upside risks to our forecasts for Globaltrans’ financials, which might be another driver for the stock (the 1H18 numbers are due to be published in August-September),” VTB said in a note.
RUSSIA Country Report July 2018 www.intellinews.com