OREANDA-NEWS. With the slowdown in construction and decline in demand for natural resources on the domestic and foreign markets, in April 2013 rail freight traffic was down 3.5% (or 3.7 mln tonnes) and freight turnover decreased by 1.5% compared to April 2012.

Notably, Russian Railways (RZD) once again made a downward adjustment to its freight traffic forecast for 2013: the decline will be greater than initially expected (a decrease of 2.4% from 2012).

The main drivers of the decline in freight transportation in April were lower volumes in such categories as petroleum products, grain and ferrous metals.

Transportation of oil cargoes fell by 7% (down 1.4 mln tonnes) compared to April 2012: oil transportation for export contracted by 14% while domestic oil transportation remained stable. Export-bound oil decreased thanks to the sharp decline in exports via rail to China (down 70% or by 1 mln tonnes due to the launch of the East Siberia — Pacific Ocean pipeline). The trend toward lower transportation volumes also affected diesel fuel for domestic use (-10% or down 0.3 mln tonnes) and export (-5% or down 0.1 mln tonnes), as well as the export of heating oil (-7% or down 0.3 mln tonnes) and other petroleum products (-42% or down 0.3 mln tonnes). On the other hand, in April 2013 domestic transportation of liquid gases increased by 21% (up by 0.3 mln tonnes) compared to April 2012, and thanks to increased gas supplies to the Netherlands gas exports by rail rose by 16% (0.2 mln tonnes).

Grain transportation was down by one half (0.9 mln tonnes) compared to April 2012. This can be attributed to the general decline in grain exports following last year’s drought.

Metal producers reduced their output in April 2013 (as steel prices fell 11% from April 2012) and purchased less scrap. Subsequently, the transportation of ferrous metals in April was down 8% (0.5 mln tonnes) compared to April 2012. This stems from a 15% decline in the export of ferrous metals (down 0.4 mln tonnes) and 2% decline in domestic shipments (down 0.1 mln tonnes). The main reason for the decline in export-bound metal was a decline in shipments of rolled steel products to Italy, India, Iran and Korea. The scrap metal transportation volumes were down 13% (or 0.2 mln tonnes).

Transportation volumes in all other categories fell only slightly: by 1% (down 0.2 mln tonnes) for construction materials, by 0.4% (down 0.1 mln tonnes) for coal and by 3% (down 0.1 mln tonnes) for timber.

However, despite the general trend toward lower transportation volumes in April 2013, the volume of iron ore transportations again increased (up 6% or 0.5 mln tonnes from April 2012). The reason for this was higher ore exports to China, Finland and Ukraine.

Rolling stock production
 In April 2013 railcar production gradually began to recover, and largely on account of Russian plants. Production increased across a broad number of railcar types: oil tank cars, box cars, gondolas and cement hoppers.

Following a decline in Q1, railcar plants in the CIS produced 7,650 units of rolling stock, which is 14% more than the previous month but 31% less than in April 2012.

Of this total, Russian producers accounted for approximately 5,000 units, compared to the average of 4,000 units per month in the first quarter of the year.

Production of gondolas in the CIS in April amounted to 2,800 units. Since October 2012 prices for gondolas declined by 20%, sliding 2.5%-3.0% on average per month. As a result, in April various gondola models were offered in the price range of USD 52,400 — USD 60,000.

Production of oil tank cars increased twofold (1,950 units in April 2013). The average price for these cars decreased by 14%, and the price range is USD 62,000 — USD 76,000.

Production of box cars exceeded 670 units (up 46% from April 2012). The price for this type of rolling stock is about USD 70,000 — USD 75,000 (down 13% from April 2012).

In April 640 cement hoppers were produced, which is nearly three times more than in April 2012. The average price for this type of railcar fell to USD 63,000 (down 19% from April 2012).

The most active growth in production was seen in the grain hopper segment. In April 2013 more than 500 units were produced, up sharply from April 2012, when only one batch of 50 grain hoppers was produced. In April of this year grain hoppers were selling for USD 59,000 — USD 75,000.

The production of gas tank cars totalled 285 units (up 68% from April 2012). The price for these railcars held steady at around USD 90,000.

Russian market for railcar operating leasing
 Half a year after the standardization of tariffs for empty gondolas and flat cars operators have begun to adapt to the new market realities: the daily rates for gondolas have begun to rise. Rates for specialized rolling stock remain practically unchanged, with the exception of tank cars, for which rates have declined.

Rates for gondolas in April increased to USD 20 per day. It remains early for any talk of the full recovery of this segment, as the market’s dynamics should become more perceptible closer to the middle of the year, when a clearer picture emerges of the trend in international demand for Russian resources.

Compared to April of the previous year, daily rates are down for universal flat cars and tank cars. The rates for flat cars have come down to USD 32 (down 25% from USD 44 per day). Rates for oil tank cars declined 10% to USD 36-USD 40 (as the overall transportation volume of petroleum products declined) while rates for box cars have fallen to USD 35-USD 50 (depending on cubic capacity and age). Rates for new gas tank cars remained stable at a level of about USD 52 per day.

Russia’s rolling stock fleet
 As operators adapt to new market conditions, the surplus of rolling stock has continued to decline gradually.

Surplus rolling stock fell to 50,000 railcars compared to 100,000 in January-February 2013. Car use efficiency in April 2013 declined by 4.2%; in other words, approximately an additional 50,000 railcars were needed to transport the same amount of cargo compared to April 2012.

However, the empty run ratio increased to 75%. This high level was due in large part to the high ratio for gondolas (rising from 64% to 67% for this segment).

In April the Russian government adopted measures to toughen the procedure for extending the service life of old railcars: now the service life can only be extended for one year. This limitation should make it economically unfeasible to maintain old rolling stock in one’s fleet. Over the course of the next year, in our opinion, this measure will affect 50,000 railcars whose service life is expiring, and half of them are gondolas. In the coming 3-5 years as many as 300,000 units could be forcibly decommissioned, 170,000 of which are gondolas.