Railcar makers at risk after Russia pulls certificates

The Russian rail transport agency responsible for product quality suspended the certificate for bogie frames (castings) from Kremenchuk Casting, Interfax reported yesterday. Ukrainian railcar manufacturers that use the casting parts including Kryukiv Wagon (KVBZ UK) and Stakhaniv Wagon (SVGZ UK) will not stop production, but will be prohibited from making deliveries to Russia until the certificate is reinstated. The suspension is most likely related to two railcar accidents in Russia in late January caused by damage from Kremenchuk bogie frames made back in 2010 (see our news from February 2).

Roman Dmytrenko: The suspension Kremenchuk Casting’s certificate will negatively affect production at both Kryukiv Wagon and Stakhaniv Wagon as neither have an alternative source for castings. We expect both companies to report a significant drop in production in February. When Russia suspended Kremenchuk Casting’s license temporarily in November 2011, Kryukiv Wagon’s production fell by 73% mom and Stakhaniv Wagon’s by 17% mom. We expect the suspension to be short-lived: (1) there is no proof that the quality of Kremenchuk’s products made in 2011-2012 is poor, and (2) the agency is aware that the plant accounts for 40% of casting supplies for all CIS-made railcars so a long-term suspension would harm all CIS railcar makers and might even result in a railcar shortage in the region.