January 30, 2018

Asian metro slowdown hits rolling stock market

Written by  Jonny Dearden
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IRJ Pro market researcher Jonny Dearden reviews the winners and losers in the rolling stock market in 2017.

THE rolling stock market saw an overall 18% decrease in the number of vehicles ordered last year, according to data from IRJ Pro Fleet Monitor. Although the number of individual orders recorded in the database remained static at 214 in 2017 compared with 225 in 2016, the total number of vehicles ordered fell from 15,186 in 2016 to 12,424 last year.

 

This has been largely driven by a slowdown in the Asian markets for metro train orders. In Asia, recorded orders for metro vehicles fell sharply by 41.7% from 2827 in 2016 to 1647 in 2017. This can be seen, in part, as a reflection of the start of a change of appetite in China for further metro development. This change of mood in China follows a glut of metro line building, with over 50 cities working on metro projects, due to a loosening of population restrictions for metro construction in 2016. The National Development and Reform Commission, China’s top economic planning authority, is now looking to raise the population and fiscal requirements needed for approval for further metro construction, fuelled by concerns over high debt levels from city infrastructure spending.

rollingstockTrakoIndian metro train orders were also down by 58% in 2017, from 229 vehicles in 2016 to 96 in 2017. This again reflects a change in attitude towards new projects, as India also tightened the approval process for new construction in 2017. The government will now only approve or fund projects that have an agreed public-private partnership (PPP) element to them. Private participation “either for complete provision of metro rail or for some unbundled components” such as automatic fare collection, now forms an essential requirement for any metro rail project seeking central financial assistance. To ensure the financial viability of a project, the new policy also requires a higher rate of return, up to 14% compared with the previous 8%, and that all plans have been extensively evaluated by a third-party company.

The policy will reduce the financial burden of metro expansion on the central government, but it will also check the ambitions of cities that look towards metro systems as aspirational projects. The new policy also calls for an “alternative analysis” to ensure that metro rail would be the most cost-effective solution when considering demand, capacity, and feasibility.

However, there were several notable orders elsewhere in Asia. In Japan the Tokyo Metropolitan Bureau of Transportation ordered 216 Toei 5500 series vehicles for the Toei Asakusa Line from Nishi-Magome to Oshiage. In Malaysia, Prasarana ordered 252 driverless vehicles for Kuala Lumpur metro Line LRT3 from a consortium of CRRC Zhuzhou, Siemens China, and Malaysian partner Tegap Dinamik. Prasarana also ordered 108 Innovia Metro 300 vehicles from a consortium of Bombardier and Hartasuma, which will be used on services for Kuala Lumpur’s Kelana Jaya Line

2017 continued to yield poor results for the North American locomotive market. The US Environmental Protection Agency’s (EPA) Tier 4 standard, which came into full affect at the start of 2017, has continued to put pressure on production costs for new locomotives. Although there was an increase in rail freight traffic, these gains have not restored volumes to pre-2016 levels. These factors have helped sustain the trend towards the rebuild market and a decline in demand for new build locomotives, with General Electric (GE) laying off workers in US plants throughout 2017 citing low order volumes. GE announced in July 2017 that it would transfer production of locomotives from its plant in Erie, Pennsylvania, to Fort Worth, Texas following a 10% drop in domestic orders. GE also announced in November 2017 that it was looking to sell its Transportation division.

GE said that recent downturns in the North American locomotive market had been partly offset by international growth and a strong backlog in its services business. It has instituted base cost reductions and rigorous supply chain management as well as focus on capital investment to optimise working capital requirements. However, the company admits there are “continued market challenges” and that it would still be under pressure in 2018-19. GE expects Transportation revenues to fall by 15% and profits by 25% in 2018.

Across the Atlantic, confidence appears to be returning to the European locomotive market, with orders increasing 80.3% to 530 units, compared with 294 in 2016. A large part of this increase can be attributed to strong growth in Germany. There will be further good news for German rail freight operators this year with a reduction in track access charges as part of a new rail freight master plan. The 2018 federal budget allocates e350m to reduce the price of rail freight transport. This could help spur further investment in new and more efficient motive power.

Another notable growth area was the Polish market for EMUs, with orders increasing from 213 vehicles in 2016 to 489 last year. Much of this is accounted for by one order for 71 Stadler Flirt EMUs (325 vehicles) from Masovian Railways (KM). It was also a good year for the LRV market in Poland, despite the cancellation of a tender for 213 trams for Warsaw, with the acquisition of 201 vehicles across nine orders, a significant increase compared with 2016.

2017 was a breakthrough year for hydrogen traction. Lower Saxony Transport Authority (LNVG), signed a contract with Alstom and gas supplier Linde Group in November for a fleet of 14 two-car Coradia iLint hydrogen fuel cell multiple units. Further iLint orders are anticipated in 2018. Also in November, Ballard Power Systems announced it had signed an agreement with Siemens to develop a fuel cell propulsion system for Siemens’ Mireo multiple unit.

Battery power is also increasingly in-vogue as battery technology advances, improving the viability of onboard energy storage for main line rolling stock. Arriva Netherlands signed a contract with Stadler for 18 Wink electro-diesel multiple units, which will initially operate on biodiesel on non-electrified lines, with provision for conversion to battery and 1.5kV dc overhead electric operation.

Looking ahead to 2018, Turkish State Railways (TCDD) has invited suppliers to prequalify by January 25 for a three-stage contract to supply 96 250km/h trains with a gradual transfer of technology and production to Turkey.

Also in Turkey in 2018, Siemens will begin production of LRVs at its new €30m plant in Gebze east of Istanbul. Siemens hopes that the production in Turkey will provide cost advantages when competing for international orders.

In South Africa, construction of the Gibela plant, in Dunnottar is due to be completed in March 2018. Alstom Southern Africa is the majority shareholder in Gibela (61%), while Black Economic Empowerment (BEE) partners New Africa Rail and Ubumbano Rail hold 9% and 30% respectively. The plant is expected to deliver its first locally-assembled train to its customer by December 2018 and will ultimately build 580 six-car X’Trapolis Mega EMUs for Passenger Rail Agency of South Africa (Prasa).

In Britain, CAF will open its rolling stock plant in Newport in the autumn. The new plant will assemble vehicles for the British market. CAF says it is responding to customer demands for “British trains, manufactured by British workers, using British-based suppliers.”

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