Old railways restrict Russian metal exports

      Russian metals firms seeking to increase exports to China and other Asian buyers face an uphill struggle as they grapple with infrastructure constraints on Soviet-era rail lines in Siberia and the Far East. Russia’s two main rail lines in the region, the Trans-Siberian and the Baikal Amur Mainline (BAM) are becoming overburdened as freight shipments increase. The problem could worsen as Russia boosts shipments of copper, iron ore and coal to China, its largest trading partner and the world’s second largest economy.

      “You have no sophisticated road links between Russia and China, that means you have to use the railway and you have to improve the railway quality,” said Maria Leenen, chief executive of Hamburg-based SCI Verkehr international rail consultancy. “There is no real alternative.”

      While the RZhD state rail monopoly has mooted a series of ambitious plans to overhaul the rail network in Russia’s vast interior, including the $16-billion construction of a second track for the 4,324-km BAM, Leenen said the immediate priority should be improving existing assets. “They have very old locomotives, and they are really not reliable any more,” she said.

     RZhD plans to spend more than $3.74 billion on 1,250 new locomotives between 2011-13, but Leenen said actual purchases often fall short of the initial goals. Rail lines were seriously overstretched in the 2009-10 winter, when extreme temperatures and unloading problems at ports delayed shipments of coal and other products by several weeks.

      Capacity on the lines will need to increase after more Russian metals firms bring export-oriented mines and smelters on line in the Far East, where executives are lobbying the government to develop transport infrastructure. “In the coming decades the main sources of global demand for key industrial resources will be the countries of east Asia, starting with China, Japan, Korean and then India,” Oleg Deripaska, chief executive of aluminium producer RUSAL has said. “Business forms the demand, and it is the task of the government to guarantee growth opportunities. For example, we need acceptable transport and logistics infrastructure.”

      Increasing the number of rail borders with China is another way to relieve congestion on Russia’s railways. Hong Kong-listed iron miner IRC developing several mines in the Amur Region bordering China, wants to build a bridge across the Amur River that will allow it to ship iron ore concentrate to Chinese steel mills about 500 km distant. The new bridge will be the only freight crossing for about 3,000 km. IRC currently ships iron ore concentrate via the two existing crossings at Grodekovo and Zabaikalsk. IRC hopes the bridge will go into operation by 2015.

      Depite current obstacles, the potential for increased rail traffic between resource-rich Russia and raw materials-poor China is huge. Annual turnover rose 50 percent in 2010 to reach $59 billion, according to Russian customs data. Though energy imports are likely to account for the bulk of increases in 2011 thanks to the new ESPO oil pipeline, analysts also expect Chinese purchases of metals, iron ore and coal to increase more as its economy grows.

(This has been edited from a report for Reuters by Alfred Kueppers.)