Loading on Russian railways decreased noticeably in the first quarter
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Loading on the railways of the Russian Federation in the first quarter decreased markedly: according to preliminary estimates, by 3.2%. The main losses occur in the transportation of coal for export and construction cargo within the country. Of the 9.7 million tons of total losses, 8.7 million were underloaded in the southern direction. According to analysts, it is unlikely to expect an improvement in the situation in the second quarter: coal prices on world markets have not yet shown an upward trend, and the export duty makes coal exports through the southern and northwestern directions uncompetitive.
The expected decrease in loading of JSC Russian Railways based on the results of the first quarter will be 3.2%, to 295.7 million tons, follows from the presentation of JSC Russian Railways for a meeting with shippers (“Kommersant has seen the document”). The largest losses (5.5 million tons) are construction cargo, the loading of which will be reduced by 17%.
In January and February, loading also showed a decline exceeding 4% (see “Kommersant” dated March 1). Approximately the same dynamics were observed in the first year after the outbreak of hostilities in Ukraine in 2022 (a drop of 3.8%). For 2023, JSC Russian Railways planned growth, but in the fourth quarter, transportation began to fall, which led to a minus at the end of the year (see “Kommersant” dated January 10). In general, 3–4% is not the deepest drop in the modern history of Russian railways (in some months of the 2008 crisis it exceeded 26%) and is more similar to the losses in the spring-summer months of covid 2020 (4–5%).
Oleg Belozerovhead of Russian Railways, March 13:
“In freight transportation, the average annual growth rate until 2030 is assumed to be more than 2%. This is almost plus 200 million tons by 2023.”
In the first quarter, coal loading will lose 4.7 million tons, or 5.1%. A strong decrease in exports (by 5.8 million tons, or 11.3%) will be offset by an increase of 1 million tons in domestic traffic. The picture is similar with other bulk cargo on the network – oil and petroleum products. Their exports fell 10.7%, or 2.6 million tons, but domestic traffic rose 5.6%, bringing the overall decline to only 1.6%, or 0.9 million tons.
Growing cargo categories are fertilizers (plus 1.9 million tons, or 12.5%), showing growth in all communications, especially exports (plus 1.6 million tons, or 24.8%). Loading of grain is also growing – by 7.7% in general and by 10.9% for export – and container cargo, showing an increase of 6.8%, with domestic transportation being the driver (an increase of 0.5 million tons, or 9 ,1%). With a significant decrease in exports (by 9.7%), transportation of timber cargo in absolute terms increased slightly – by 0.8% – thanks to domestic transportation.
The main losses in cargo traffic—8.7 million out of 9.7 million tons—are in the southern direction.
Loading of coal for export through the ports of the Azov-Black Sea basin fell by 58.3%, decreasing by 4.7 million tons. Russian Railways explains these losses by the lack of concluded contracts for coal transshipment in the port of Taman against the backdrop of increased rates and tightened financial responsibility of shippers to the terminal. As Kommersant wrote, coal companies, due to the high cost of transshipment in February-March, stopped sending cargo through the OTEKO terminal in Taman (see Kommersant from 6 February, 6 And 19 Martha).
Another 3.8 million tons in the southern direction were lost in the loading of construction cargo in domestic Russian traffic, and ore loading also decreased by 1.4 million tons – however, offset by a slight increase in exports. JSC Russian Railways explains that the loss of loading construction cargo in the south is associated with the completion of construction of sections of the M-12 highway and bypasses of large cities (Krasnodar, Anapa, Saratov, Grozny, Volgograd, etc.), unfavorable weather conditions and high rental rates for gondola cars. The reason for the decline in ore is repairs at large enterprises in the Belgorod, Kursk, Kemerovo and Sverdlovsk regions, as well as a reduction in transportation to Novorossiya due to a reorientation to local raw materials.
Also in the south, the export of 1.1 million tons of oil cargo was lost – due to a high cargo base at the beginning of 2023 and a decrease in loading at refineries of the Ufa, Samara groups and Saratov region for technological reasons.
The railways missed another 4 million tons in the northwestern direction.
The main contribution was made by a decrease in loading for export of coal (minus 16.5%, or 2.6 million tons), iron ore (minus 50.2%, or 700 thousand tons) and oil cargo (minus 13.6%, or 1.5 million tons). Russian Railways explains the difficulties with coal due to the unstable work of service companies and conventions (restrictions on shipments) to Ust-Luga due to freezing of cargo. The last factor also applies to fuel oil arriving in Ust-Luga, which caused a decline in export shipments along with equipment breakdowns at the Nizhny Novgorod refinery and delays in the delivery of the tanker fleet.
The decline in coal exports in the first quarter was largely caused by a decline in prices on world markets amid high tariffs for transportation by rail and transshipment in ports, says Maxim Khudalov, chief strategist of the investment company Vector X. Prospects for improving the situation are not yet visible, and, most likely, before the start of preparations for the heating season, prices for energy-grade coal will not increase, and infrastructure operators (primarily ports) are unlikely to significantly reduce the cost of their services.
“In addition, the export duty on coal adds negativity, which is finishing off the already weak economy of exporting thermal coal through the western and southern directions,” explains Mr. Khudalov.
In his opinion, we can expect a decrease in coal exports by 5–8% in the second quarter compared to the first quarter. For ferrous metals, Mr. Khudalov expects a fall of 1–2% due to the fact that the construction sector, against the backdrop of high rates and problems with labor, begins to reduce consumption, but this will be partially offset by an increase in seasonal demand.
According to the head of Infoline-Analytics, Mikhail Burmistrov, there are three items that are growing steadily: grain, containers and mineral fertilizers. For other cargoes, the dynamics are disappointing: the Russian coal industry has already begun to reduce production, as some brands of coal, taking into account discounts and rising logistics costs, are becoming uncompetitive on world markets. In construction cargo, there is also stagnation in underlying demand in residential construction, but there is potential associated with large infrastructure projects.
Mr. Burmistrov notes that if previously there was an illusion that cargo owners have unlimited financial resources and are able to simultaneously pay excess profit tax, additional export duties, as well as pay logistics and transaction costs due to the reorientation of exports, now this illusion has been dispelled.
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