Canadian Pacific’s chemicals and plastics freight
Canadian Pacific’s (CP) chemicals and plastics business is dominated by petroleum products. The company hauls liquid petroleum gas, gasoline, diesel, condensate, asphalt, and lubricant oils. CP’s petroleum products’ traffic begins in Saskatchewan’s and Alberta’s industrial heartlands. It also transports condensate, LPG (liquefied petroleum gas), and natural gas liquids from the Bakken Formation region in southern Saskatchewan and North Dakota.
Chemicals and plastics account for approximately 11% of CP’s 2015 revenues. The company’s chemical traffic originates from eastern Canada, Alberta, the US Midwest, and the Gulf of Mexico and moves to end markets in the United States, Canada, and abroad. The majority of CP’s plastics shipment comprises polyethylene and polypropylene.
The conventional heavy, light, and medium oil production in the Alberta region is expected to go down marginally in 2016. On a positive side, the production of natural gas liquids is anticipated to go up in 2016 and 2017. The Conference Board of Canada predicts that with the stabilization of oil markets, Alberta’s and Saskatchewan’s economies will begin to grow in the first half of 2016.
The Board added that the North American supply will wane, specifically in the US Bakken (North Dakota) and Permian (Texas) shale oil fields. In 2015, the production of polyethylene and polypropylene was the best it had been in North America since 2010. Major petrochemical companies have planned to expand ethylene production in North America by a minimum of 20% between 2016 and 2020.
Peer group prospects
Kansas City Southern (KSU) sees higher prospects for hauling chemical products in 2016. CP’s US peer, Union Pacific (UNP), also expects a better chemical business in 2016. Norfolk Southern’s (NSC) management anticipates further growth in chemicals up until 2020. CSX (CSX) foresees strength in plastics and LPG in 2016. CP’s rival Canadian National Railway (CNI) has exclusive access to British Columbia shale. The company is bullish on the plastics and petrochemicals business in 2016.
The Vanguard FTSE All-World ex-US ETF (VEU) invests 0.19% in CP and CNI. If you’re looking for US exposure, the Vanguard Dividend Appreciation ETF (VIG) holds 1.2% in US-originated Class I railroads. In the next part of this series, we’ll consider the journey of CP’s crude business in 2016.