Exclusive-Russia's major exporters cut rail cargo volumes as economy slows, document shows

Major Russian exporters, including Rusal and Gazpromneft, are reducing planned commodity shipments via rail, signaling a slowdown in Russia's war economy; Russian Railways intends to cut 2025 spending by 3.5% due to a revised cargo forecast, which anticipates 36.7 million metric tons less than initially projected. Reduced demand stems from factors including high interest rates (21%), Western sanctions impacting the steel industry (contributing nearly 5% to GDP), decreased exports to China, and Ukrainian drone strikes on Russian energy facilities, all contributing to lower cargo volumes and highlighting the economic challenges facing Russia's export-driven economy.

Analysis

Indications of a slowdown in Russia's war economy are mounting, evidenced by major exporters including Rusal and Gazpromneft scaling back planned rail shipments of commodities such as metals and oil products. State-owned Russian Railways is consequently set to reduce its 2025 spending by an additional 32.5 billion roubles (approximately 3.5%) to 858.4 billion roubles, reflecting a revised cargo forecast that anticipates 36.7 million metric tons less than the initially projected 1.24 billion tons for 2025. This austerity measure follows a significant 40% planned investment cut for the current year compared to 2024, as overall cargo volumes hit a 15-year low in 2024 and declined a further 6.8% year-on-year in the January-April period. The downturn stems from a confluence of severe headwinds: restrictive domestic monetary policy, with the Bank of Russia maintaining a 21% key interest rate that has dampened construction and pressured steel producers like Severstal and MMK to curtail loadings; comprehensive Western sanctions that have significantly eroded export revenues for the vital iron and steel sector (contributing nearly 5% to GDP) and other key industries; a 7.5% year-to-date contraction in trade turnover with China, impacting exports of wood, fertilizer, metals, and oil products; and physical disruptions to critical energy infrastructure attributed to Ukrainian drone strikes. Rusal's decision to cut annual aluminium output by 250,000 tons due to rising alumina prices further exemplifies the challenging operational landscape and subdued demand impacting the Russian economy.

Key Decisions for Investors

• Investors should exercise heightened caution regarding assets with direct exposure to the Russian economy, given the clear indicators of slowing activity and multifaceted headwinds including sanctions, high interest rates, and geopolitical instability.
• Holdings in specific Russian commodity exporters mentioned, such as Rusal, Gazpromneft, Severstal (CHMF), and MMK, warrant close scrutiny due to their direct contribution to reduced shipment volumes and vulnerability to ongoing economic pressures and sanctions.
• Key metrics to monitor include Russian rail freight data, Bank of Russia's interest rate decisions, Russia-China trade figures, and the operational impact of sanctions and geopolitical events on Russian commodity sectors.
• Given Severstal's (CHMF) specific mention in relation to reduced steel cargo volumes and a per-ticker sentiment score of -0.7, investors should critically assess their positions, considering the potential for continued underperformance and heightened risks associated with the company.