Railcar lease rates fall again

Russian spot lease rates for open-top railcars further decreased in July owing to a railcar surplus and fewer coal and other bulk cargo loadings.

The average open-top railcar lease rate in short-term agreements for coal transportation in Russia was down by Rbs200/d from June to Rbs1,800-1,950/d, excluding value-added tax (VAT), market participants said. Long-term rates also fell in June.

Some railcar operators have reported difficulties in concluding long-term contracts as customers expect rates to keep falling.

"The situation in the freight market is similar to 2012, when rates also dropped sharply. By autumn, the spot rate can fall to Rbs1,400-1,500/d, excluding VAT. The fall of transportation cost is not caused only by the situation on the coal market — global prices decreasing, lower export shipments, and difficulties with loadings to Ukraine — but also by a decline in gravel and other mineral construction materials loading," a freight company source said.

Railcar surplus is forcing operators to reduce next year's orders for construction. "The line of orders at the plants is about six months, and the cost of a new standard open-top railcar is about Rbs3.3mn, excluding VAT, while the cost of a new innovative open-top railcar is about Rbs4.4mn, excluding VAT. These are very high prices, and we expect that by the end of this year, prices will begin to fall in line with decreasing demand. About half of a railcar's cost is the producer's margin; therefore, the potential for reductions persists," an operator said.

Find more news, price information and market analysis on Russian coal exports in Argus Russian Coal report.