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Union Pacfic’s Chemicals Division Fell due to Weak Pricing

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Chemicals division

Union Pacific’s (UNP) chemicals division reported $905 million in revenue in 2Q15. This accounts for ~18% of the total freight revenue. In 2Q14, the group reported $913 million. It serves chemical producing areas along the Gulf Coast, where roughly 60% of the company’s chemicals business originates, terminates, or travels. Union Pacific also accesses chemical producers in the Rocky Mountains and on the West Coast.

The company’s chemical shipments include petrochemicals, fertilizer, soda ash, and more. Petrochemicals mainly include petroleum products and crude oil, industrial chemicals, plastics, and LPG (liquid petroleum gas). Union Pacific moves these products to and from the Gulf Coast region.

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Improved pricing

Union Pacific’s plastics shipments were up 11% in the second quarter. Stable resin pricing led to strong buyer confidence in the market. The company also saw strength in the export volume. The petroleum and LPG volumes were up by 10% in the second quarter mainly due to strength in several LPG markets. The company’s volume gains were offset by a 29% fall in crude oil shipments. It continued to be impacted by lower crude oil prices and unfavorable price spreads.

The company expects strength in LPG and plastics for 2H15. However, crude oil prices and unfavorable spreads will be a significant headwind for crude-by-rail shipments for the rest of the year.

Over the past 12 months, Union Pacific has spent a total of $4.1 billion on capital expenditures to boost its infrastructure. Below is a look at how other companies compare in terms of capital expenditure:

  • CSX (CSX) – $2.6 billion
  • Canadian National Railway (CNI) – $2.22 billion
  • Norfolk Southern (NSC) – $2.13 billion
  • Canadian Pacific Railway (CP) – $1.32 billion
  • Kansas City Southern (KSU) – $976 million
  • Genesee & Wyoming (GWR) – $326 million

Together, these companies form 7.59% of the Industrial Select Sector SPDR ETF (XLI).

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