Russian Economy: Rail Freight Plunge Signals Deepening Economic Woes

The Russian economy appears to be experiencing a period of deceleration, a trend underscored by significant adjustments in freight volumes carried by the nation’s state-owned railway network. Key commodity exporters, including prominent players in the metals and oil sectors, are reportedly scaling back their projected rail shipments. This reduction in demand has direct implications for Russian Railways, prompting a review of its financial outlook and investment plans for the coming years.

Diminished Rail Traffic Signals Economic Shift

Rail freight volumes are widely considered a crucial indicator of Russia’s industrial health and export-driven economy. According to a document reviewed by Reuters, Russian Railways anticipates a decrease of 36.7 million metric tons from its initial 2025 cargo projection of 1.24 billion tons. While the total cargo volume for the current year is still expected to marginally exceed the 1.18 billion tons transported in 2024 – a year that saw volumes hit a 15-year low – data indicates a 6.8% year-on-year decline in the January to April period. This broader slowdown is compelling the rail operator to revise its expenditure.

Consequently, Russian Railways plans to cut its 2025 expenditure by an additional 32.5 billion roubles ($408 million), reaching 858.4 billion roubles. This follows a substantial 40% reduction in its investment plans for the current year compared to 2024, largely due to rising interest payment costs. The railway authority attributes the need for these adjustments to external factors impacting demand.

Key Exporters Adjusting Volumes

A dozen major Russian companies have contributed to these reduced rail shipment forecasts. Among them are industrial titans such as aluminum producer Rusal and steel manufacturing giants Severstal and MMK, alongside energy conglomerate Gazpromneft. The decision by these large exporters to reduce their planned rail usage points to a broader weakening in demand for their products, both domestically and internationally.

Contributing Factors to the Slowdown

Several interconnected factors are cited as contributing to the observed economic slowdown and the subsequent reduction in rail freight:

• Tight Monetary Policy: The Bank of Russia’s high key interest rate, which has stood at 21% since October, has significantly dampened economic activity. This tight monetary stance has particularly affected the construction sector, leading to a reduced need for raw materials.
• Impact on Steel Production: High interest rates have also led to decreased loading volumes from major steel producers including Severstal, MMK, TMK, NLMK, and Evraz. Russia’s iron and steel industry, which constitutes nearly 5% of the country’s GDP, has faced considerable challenges. Western sanctions have restricted access to lucrative international markets, causing export revenues to plummet, as highlighted in a report by Moscow-based consultancy Yakov and Partners. Data from the World Steel Association and analytical firm Chermet Corporation confirm a drop in steel production, exports, and local demand in 2024, with output continuing to decline this year.
• Broader Sectoral Demand Reduction: Beyond steel, the railway document also notes reduced demand from other critical sectors, exemplified by companies like aluminum giant Rusal.

The collective actions of these major industrial players and the accompanying adjustments by Russian Railways offer a clear picture of the ongoing economic challenges facing Russia.