National railcar building continues to recover and increases the consumption of steel products
This year is expected to be successful for Ukrainian railcar builders. Statistics for the first quarter confirm good forecasts for the industry. Within first three months of 2019, the Ukrainian railcar-building enterprises increased their output by 16.2% compared to the corresponding period last year – to 2,926 units of unpowered freight cars, flat cars, railway and tramcars.
The experts and market participants predict an increase in the production of railcars this year to 13 thousand units. However, it is possible that in reality, the figures will be higher. Ukrainian metallurgists hope for this owing to the growth of the domestic metal products market. Last year, the volume of metal consumption in railcar building was estimated at 300 thousand tons. In 2019, it can grow by another 15-20%. Similar dynamics are expected in railcar repair.
Last year’s results
According to the State Statistics Service, the production of freight cars and platforms in 2018 increased by 63.3% to 11,152 units. In 2017, the railcar builders manufactured 6,831 cars. This is 2.4 times more than in 2016 when 2,811 cars were released. “Ukrzaliznytsia” in 2018 expanded the freight car fleet by about 3.5 thousand units. The operator bought railcars and manufactured them, using its own facilities. During the first 9 months of 2018, “Ukrzaliznytsia” produced about 2.4 thousand cars, with an annual plan of 3.6 thousand units.
The largest private manufacturers of freight cars in 2018 were: Kryukivskyi Railway Car Building Works (KRCBW) – the company increased its production by 83%, to 3,686 units; “Dniprovagonmash” that manufactured 2,312 cars; a car-building enterprise “Aurum Group” (“Diesel Plant”) that in 2018 built 258 freight cars, including 10 grain-carriers and 248 gondola cars.
The plans of “Ukrzaliznitsia” strongly depend on financial opportunities that leave much to be desired. For example, in 2018, the state monopoly planned to replenish the fleet by 10 thousand freight cars. However, without a loan from the European Bank for Reconstruction and Development (EBRD), the plans have dropped. As a result, UZ received only 3.5 thousand units.
At the end of last year, “Ukrzaliznytsia” signed an agreement on raising a loan from the EBRD in the amount of $150 million to purchase approximately 6.5 thousand gondola cars. At that moment, the head of the administration of UZ Yevhen Kravtsov said that the tender had already been announced. The first deliveries were expected by the end of 2018. However, later the auction was deferred to a later date.
The financial plan of “Ukrzaliznytsia” for 2019 provides for the purchase of rolling stock at UAH 5 billion. The carrier expects to buy at the expense of the EBRD about 2.15 thousand gondola cars and produce about 3 units, using its own facilities.
Private entrepreneurs have more ambitious production plans for the current year. For example, “Dniprovagonmash” intends to increase production by 36% – up to 3,150 units. “Aurum Group” plans to increase production by 3 times at once as well as its own gondola fleet by 300 units.
KVSZ intends to keep the production volumes of railcars at the level of 2018 – about 3.7 thousand units. However, the annual indicators of the enterprise will probably be higher, as, in the first quarter of 2019 alone, the plant manufactured 1,277 freight cars. This is 73% or 539 units more than in the same period last year.
The share of the largest manufacturers
For obvious reasons, there is no summary statistics of metal consumption in railcar building and railcar repair. It can be estimated according to suppliers or manufacturers, as well as metal content of railcars themselves.
In 2018, “Metinvest” dispatched over 150 thousand tons of rolled metal products to railcar builders and railcar repairmen. The company supplies private and national manufacturers and repair companies of the industry primarily with long products and shape steel-rolled stock.
Last year, “Interpipe” increased supply of wheels to the domestic market by 39% compared with 2017 – up to 62 thousand tons. The company shipped almost half of this volume to “Ukrzaliznytsia”.
Therefore, the total supply of metal products for the car building and car-repair services of the two largest manufacturers exceed 200 thousand tons.
It is quite difficult to calculate exactly the amount of metal consumed by other 5-10 large and not so large manufacturers of railcar metal products. However, the order of figures can be estimated.
The indicators of metal consumed by railcar manufacturers vary significantly depending on the volume of production. According to Andrii Zharii, CEO of “Aurum Group”, in 2018, the total consumption of rolled metal in the car-building and repair sectors of “Aurum Group”, excluding casting and spare parts (solid-rolled railways wheels, axles), amounted to 3.6 thousand tons. In 2019, the consumption of rolled metal products is expected to be at the level of 8-9 thousand tons. As an example of the calculation of metal consumption in car building, the data from one of the largest enterprises in the industry “Dniprovagonmash” CJSC are demonstrated below.
Metal consumption at “Dniprovagonmash”
|Type of metal consumption||2018||Forecast for 2019|
|Metal consumption in car building, thou. t||60.6||81.6|
|Metal consumption in railcar repair, thou. t||0.4||0.9|
|Production of railcars, pcs.||2312||3150|
|Repair of railcars, pcs.||33||72|
|Average metal consumption in car building per car, t||26.2||25.9|
|Average metal consumption in railcar repair per one car, t||12.1||12.5|
Data source: “Dniprovagonmash” PJSC
“On average, the unladen weight of a railcar is 24 tons. 10 tons come to bogies (the running gear of the car) and 14 tons per body, while almost 100% of the car consists of metal,” explains Oleh Kornetskyi, CEO of “Dniprovagonmash” JSC. According to “Dniprovagonmash”, about 26 tons of metal products is spent on the construction of one car, whereas the own weight of the most common types of freight cars in Ukraine (gondola cars, grain-carriers) ranges from 23 to 24 tons. Thus, if 11,152 cars produced in 2018 are converted into metal, we get approximately 290 thousand tons. As experts say, the Ukrainian railcars do not have an import component. Consequently, it comes to metal products consumed exclusively by Ukrainian production. In this case, metal consumption in the production of passenger cars can be ignored, since their production amounts to dozens.
There is a wide range of products used in car building and car repair industries.
“The Aurum Group enterprises, along with the products of the foundry industry, use a wide range of rolled metal products from structural and low-alloyed steel grades in the production of cars and their repairs. It includes simple long products (round, square and hexagonal steel), shape steel-rolled stock (channel, angle), flat products (hot-rolled sheets of various thickness) and special steel (section “Z”, section “car post”),” says Andrii Zharii.
As Oleh Kornetskyi notes, it is essential to have a fairly wide list of suppliers in railcar building and railcar repair.
The main metal products for the car building industry and suppliers at “Dniprovagonmash”
|Flat and profile rolled metal products “Metinvest Holding”||“Metinvest Holding”|
|Railway axles||“Metinvest Holding”|
|Heavy bogie castings||“Kremenchuk Steel Works”|
|Medium-size and small car casting||“Dniprodzerzhynsk Steel Woks”|
Data source: “Dniprovagonmash” PJSC
According to Andrii Zharii, today the need for rolled metal products is provided by domestic products in full. The absence of a shortage of one or another product ranges largely depends on the proper planning and the timely placement of an order at the metal rolling facilities. “Today, there is an acute shortage and disruptions of supplies of solid wheels. In addition, there is a delay in the supply of metal products by rail across the entire range,” complains Oleh Kornetskyi.
Car repair volumes
Last year, “Lemtrans” alone repaired 6.4 thousand freight cars at its manufacturing sites. “Ukrzaliznytsia” modernized approximately 9.4 thousand units. This figure was mentioned by Yevhen Kravtsov.
Olexandr Kryvoruchko, head of the Association of Railcar Owners, notes that in 2018 the average monthly number of repairs according to the type for private rolling stock cars was: overall repair – 679 units, roundhouse servicing – 1,484 units and current repair – 8,993 units. Therefore, on an annualized basis, overall repairs amounted to 8,148, roundhouse servicing – 17,808.
“As of January 1, 2019, compared with the corresponding date of last year, the total renovation of the privately owned fleet of cars was about 11.97 thousand cars, including – 6.6 thousand gondola cars and more than 4 thousand grain-carriers, ”specifies Olexandr Kryvoruchko.
Metal intensity of repairs
Metal consumption in the railcar repair is much more difficult to calculate because of different metal intensity, as in one freight car a small piece of metal needs to be replaced, while in the other – a railcar bogie.
According to “Dniprovagonmash”, the repair of a freight car requires about 50% of the “metal weight” of the new car.
“The target segment of our company is the implementation of complex, metal-consuming repairs with large volumes of bodyworks, which requires a significant quantity of metal products,” explains Oleh Kornetskyi.
However, if proceeding from the above data on the volume of repair of a private fleet, the overhaul repair of private owners can be estimated at about 100 thousand tons of metal. It turns out that in general, metal consumption in the railcar repair of private freight carriers and Ukrzaliznytsia can be estimated at about 100-250 thousand tons of metal.
Short supply prospects
The growth of metal consumption in railcar building and railcar repair depends entirely on the investment plans and opportunities of Ukrzaliznytsia and private car owners.
“The prospects for consumption growth depend on the solution of a number of issues at the national level. The key issues are traction, deterioration of public roads and limitation of the service life of cars,” as was noted by “Metinvest”.
“UZ has planned to reduce the turnover period of cars by several days in the coming years, which will help to avoid a shortage of cars as such. Nevertheless, we understand that these plans are unlikely to be implemented and the shortage will exist and will be measured in thousands of cars,” summarizes Olexandr Kryvoruchko. “An additional day to turnover leads to a shortage of about 2 thousand cars.”
As for private car fleets, according to Olexandr Kryvoruchko, experts make very careful predictions about their development for the next few years. It is expected that the car fleet of GMK companies will increase by 200-500 cars per year. Among those who intend to purchase cars in the medium term are “Ferrexpo”, “Lemtrans”, possibly “ArcelorMittal Kryvyi Rih” (AMKR).
“The First Logistics Company” plans to purchase 400-500 new grain carriers by 2020. By the way, this segment is well supported by the state. From January 1, 2019, agrarians shall get jscompensation for 25% of the cost of the purchase of grain carriers.
In the coming years, the shortage of cars is likely to exist though. The research of the Ukrainian Institute for the Future has shown that the shortage of cars in 2019-2021 will reach 35 thousand, 41 thousand and 48 thousand cars, respectively.