Car builders fell short of suppliers’ expectations. Within the year, the industry used only 240-250 thousand tons of metal
In 2019, the production of freight cars and platforms in Ukraine decreased by 5.2% compared to 2018 – to 10,571 units. The indicator declined, since Ukrzaliznytsia, which produced almost nothing at its facilities and did not buy from ‘strangers’, almost completely left the market. Let us recall that in 2018 the production of freight cars increased by 63.3% – up to 11 152 units.
The growth rate of rail car manufacturing over the past year has been very unstable. In the first half of the year, railcar production increased by 10.2%, to 6,000 units compared to the same period in 2018. However, in the second half of the year, the growth rates began to slow down, which turned into a decline in November and a collapse in December. In the last month of 2019, factories produced only 530 freight cars, which is 24% less than in November and 45% than in December 2018. It should be noted that the decline in rail car manufacturing coincided with an industrial recession, which also occurred at the end of the year.
The freight car production performance acc. to manufacturers in 2019 was as follows:
- KVSZ – 5237 units. (+ 41.7% until 2018);
- EMP “Karpaty” – 1428 units. (+ 39.7%);
- “Popasnyansky Car Repair Plant” – more than 600 units. (-60%);
- “Aurum Group” – 279 units. (+ 8.1%), including 251 gondola cars and 28 grain carriers at the facilities of the diesel plant in Kryvyi Rih;
- own capacities of Ukrzaliznytsia – 21 units. (20 – gondola cars and 1 grain carrier) for own needs (according to figures provided by the Central Transportation Services). In 2018, the own production of UZ amounted to about 3 thousand rail cars.
Dniprovahonmash’s production results in 2019 are unknown, but the company has intentions to increase production by 36% to 3150 cars.
As regards 2020, rail car manufacturers are quite pessimistically disposed: the results of the end of 2019 and difficult economy growth prospects are leading to this. The first signal is that rail car manufacturers have difficulties in shaping their production plans for 2020. And this is related to the manufacture of both universal gondola cars and hoppers for grain transportation.
“The backlog of orders for 2020 has been collected in full only for January, and there is a partial shortage of what concerns February. Starting from the following months, the situation with the set of orders is still unclear,” Rostyslav Hapatin, Director of EMP “Karpaty” says.
According to Andrii Zharii, the CEO of Aurum Group, the production of rolling stock in Ukraine has an utter cyclical nature. Probably, 2019 was the end of the next peak in demand and production, and 2020 could be the year of their volume lowering.
“Given an extremely high degree of depreciation of the existing public and private fleets of freight cars, the next cycle will certainly begin when the economy continues to grow, and the infrastructure, in this case – freight cars, cannot provide it,” Andrii Zharii adds.
At Krukovsky Carriage Works, they are speaking plainly about the domestic market stagnation and possible export reorientation.
“2020 is, first of all, a year of stagnation in the freight car building market for the 1520 gauge. The decline has already been going on for at least six months. We have not felt it at KCW yet, as we have contracts that are passing from 2019 to 2020. Therefore, we are looking for buyers and partners to significantly increase exports to non-CIS markets. And this is the most important direction among promising ones. Because demand in the CIS market will decrease,” Volodymyr Prykhodko, chairman of the supervisory board of PJSC “KCW”, said in an interview with the in-house publication.
In many ways, railcar builders can hope for the implementation of plans for updating car fleets of “Ukrzaliznytsia” and private owners of car fleets. The depreciation of freight cars by many categories is 80-90%.
With a view to large orders in 2020, the following intentions can be noted so far:
- UZ wants to purchase 2,000 gondola cars at the expense of EBRD loan;
- “OTP Leasing” intends to invest in the expansion of its rolling stock up to $55 million. This is estimated at 1000-1100 new gondola cars.
In total, at present, the conditionally guaranteed volume of domestic orders for 2020 is at least 3 thousand freight cars. In lieu of Ukrzaliznytsia’s reform, the management of the Cabinet of Ministers, the Ministry of Infrastructure and the state transport operator itself were outlining plans and intentions during the second half of 2019. Now, what remains is to wait for the implementation of these “projects” as regards rail cars.
There are very few announced other private orders. So, Krolevetsky Feed Mill at the expense of a bank loan of $8,500,000 will buy 100 grain carriers as well.
In addition, it is a relief for private railcar builders that the production of freight railcars at their own capacities in UZ is not planned in 2020, which means that there will be less competition.
Another possible driver for increasing production may be the export of rail cars, which KCW wants to bet on. Thus, in 2019, Ukraine exported 2.4 thousand rail cars at $139 million. Based on the growth rates of Ukrainian export of freight cars in 2015-2019, a figure of 2-3 thousand for the current year seems quite realistic. On the other hand, given the deterioration in the global economic environment, a significant increase in foreign sales should not be expected.
Another main focus for car builders is the factor of car imports. In 2019, Ukraine imported 5.3 thousand freight cars at $85.2 million, in 2018 – more than 4.8 thousand at $67.1 million.
Metal consumption in 2019
The production of freight cars has a high degree of localization – more than 95%, that is, mainly Ukrainian products from our metal are used in their manufacturing.
“We import items that are not produced in Ukraine or are in acute shortage, in particular, air distributors produced by “Transmash” can relate to this,” Rostyslav Hapatin explains.
To produce one freight car, such amount of metal is needed, on average:
• 4 wheelsets – about 6 tons;
• car casting: side frame – 4 pcs., bolster – 2 pcs., 2 sets of automatic couplings, etc., – about 4 tons;
• rolled metal for a body – 13-14 tons.
Rail car builders purchase castings and wheelsets from external suppliers, but their task is to build a body and combine all the structural elements into the final product.
“The main suppliers of rolled metal for the needs of the plant are metallurgical enterprises of Ukraine, Slovakia, Turkey and Belarus. The plant receives casting mainly from Ukrainian plants: “Azovmash”, Kremenchuhsky, Novovolynsky and Dniprodzerzhynsky Steelmaking plants,” Rostyslav Hapatin says.
The decline in the production of rail cars last year inevitably led to a decrease in metal consumption. A simplified approach and calculation – excluding small parts and the difference in types of cars – indicates that the metal consumption by car structural elements in 2019 was in the range of:
• wheelsets – about 60 thousand tons;
• car casting – about 40 thousand tons;
• rolled metal for a body – approximately 140-150 thousand tons.
In particular, according to Rostyslav Hapatin, in 2019, EMP “Karpaty” processed 21.9 thousand tons of metal, casting and components in the production of freight cars and other products. The possible volume for 2020 is not yet clear.
Thus, Ukrainian railcar builders used about 240-250 thousand tons of metal products in the production of new freight cars, the fair share of which is domestic metal. However, this is without taking into account the purchase of the necessary metal products and components for the provision of various types of freight car repairs.