uploads///CP Carloads

CP’s Coal Railcar Units Pulled Total Railcar Units Down

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Mar. 22 2016, Updated 10:06 a.m. ET

Canadian Pacific’s total railcar units

Canadian Pacific (CP), Canada’s second-largest freight rail, registered a fall of ~7.3% in total railcar units in the week ended March 12, 2016. Railcar units excluding coal railcars fell slightly by 1.2% to 24,911 units in the latest reported week of 2016, compared to 25,225 units in the same week in 2015.

CP received 70% of its revenues from Canada, while 30% came from the United States in 2015. Overall, CP’s fall in carloads was in-line with the falls in US and Canadian total weekly carloads of 12.8% and 11.3%, respectively.

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Why coal carloads matter for CP

Coal accounted for 10% of revenues and 12.3% of carloads for CP in 2015. The company’s coal railcars fell by 28.4% in the week ended March 12, 2016. The company mostly transports metallurgical coal meant for export through Metro Vancouver’s port. CP’s coal traffic in Canada mostly comes from Teck Resources’ (TCK) mines in southeastern British Columbia.

In the United States, CP moves thermal coal from connecting railways serving the thermal coal fields in the Powder River Basin in Montana and Wyoming. Coal producers such as Alpha Natural Resources (ANR), Black Hills (BKH), and Peabody Energy (BTU) have coal mines in the area.

In the last year, coal’s production and demand have been under pressure due to depressed prices, environmental concerns, and a shift from coal-fired power plants to natural gas–based electricity generation. However, TCK has issued a slightly higher production guidance for 2016 compared to 2015. If this goes according to plan, we should see more coal being hauled by Canadian Pacific in 2016.

To invest in US railroads, you may want to consider the Industrial Select Sector SPDR ETF (XLI). US Class I railroads make up 7.5% of XLI.

The frontrunners and the backbenchers

Fertilizer and sulfur, forest products, chemicals and plastics, and automotive were the main rising commodity groups in the week ended March 12, 2016. Canadian grains, US grains, potash, crude, metals, minerals, and consumer products were the main falling commodity groups.

In the last part of this rail traffic series, we’ll look at Canadian Pacific’s intermodal traffic.

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