Russian railcar builders concerned about restrictions on wheel imports from Ukraine

Restricting imports of railway wheels from Ukraine will jeopardize the financial and economic position of many railcar plants in Russia, the Association of Railcar Builders (OVS), which includes key industry players, said, noting that domestic producers have filed a petition with the Eurasian Economic Commission (EEC) for an antidumping investigation in expectation of prohibitive duties on all types of solid-rolled wheels.

"Wheel producers in the Russian Federation have a strategic goal to raise wheel prices from the current 8% to 10% as a share of the production cost of a railcar, because they consider this to be fair," the OVS said in a statement, adding that Ukrainian wheels are currently preventing price growth.

"In Russia, only two manufacturers produce steel solid-rolled wheels for rolling stock (Vyksa Steel Works (VMZ) and Evraz Nizhny Tagil Iron & Steel Plant (NTMK)), and it is only possible to curb price growth thanks to the presence of an alternative wheel supplier from Ukraine (Interpipe) on the Russian market," the association said.

"In the current conditions" any attempts to raise prices on components will hurt all market players and push up prices for new railcars, the association warned. This could worsen the financial and economic position of many railcar plants in Russia, reduce tax revenues and negatively impact the social and economic situation in Russia's regions, the OVS said.

"The railcar market in Russia is going through difficult times. Amid an oversupply of freight cars and against the backdrop of the general economic situation, taking into account the growth of loan interest rates and decline in demand for rolling stock, production of freight cars is falling for the second consecutive year. It is becoming difficult, and in some cases virtually impossible, for railcar-building companies to raise borrowed funds for investment, for the profit margin in the railcar building business is not high," the association said.

The Customs Union in October opened an antidumping investigation into imports of railcar wheels from Ukraine, the Eurasian Economic Commission said in a statement. The investigation was initiated based on complaints filed by VMZ, a division of Ural Mining and Metallurgical Company (UMMC) in Nizhny Novgorod region, and Evraz NTMK in Sverdlovsk region.

"The investigation concerns solid-rolled wheels more than 710 mm in diameter used in manufacture and repair of wheel pairs for freight cars, passenger cars with locomotive traction, locomotives, electric and diesel train cars and specialty rolling stock. In addition, during the investigation the department for protecting the EEC domestic market will examine the issue of including the slabs used to produce these wheels," the commission said.

The two manufacturers accounted for 98.9% of solid-rolled rail wheel production in the Customs Union in the 2011-H1 2014 period.

Imports of those wheels from Ukraine increased 340% in 2011-2013, according to EEC data. The imports accounted for 95.8% of all solid-rolled wheel imports in 2011-2013 and 97.1% of the imports in the first half of 2014.

The market share of solid-rolled wheels produced in the Customs Union shrank by 13.9 percentage points in 2011-2013 and by another 2 p.p. in H1 2014. At the same time, the imports from Ukraine saw their share of the market increase by 11.2 p.p.

"In the first half of 2014 price competition on the Customs Union market increased. Following a 25.4% reduction in Ukrainian prices, producers inside the Customs Union lowered their prices 21.8%, even though costs rose 16.4%. As a result, sales margins narrowed by 22 p.p. and sales profits fell 86%," according to the EEC materials.

The margin of dumping for the Ukrainian solid-rolled wheels in the July 1, 2013-June 30, 2014 period was 36.3%, according to preliminary estimates.