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Which US Railroad Felt the Highest Jolt to Coal Revenues in 2Q16?

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Coal revenues in 2Q16

Coal revenues for railroads depend on the type of coal hauled, the price of each type of coal, the basin of origin, and end markets. In 2Q16, the biggest loser in terms of coal revenues was BNSF Railway (BRK-B), which lost a whopping 41.6% in coal revenues on a YoY (year-over-year) basis.

By comparison, the largest short-line operator in the US, Genesee & Wyoming (GWR) saw its coal revenues drop by 40.8%. Montreal-headquartered Canadian National (CNI) witnessed a staggering fall of 36% in its coal revenues in 2Q16, while Florida-headquartered CSX Corporation (CSX) watched its coal revenues slide by 34% during the same period.

The only exception to the coal debacle in 2Q16 was Kansas City Southern (KSU), whose coal revenues rose slightly due to better pricing per carload on a YoY basis.

Canadian Pacific (CP) appeared to be relatively better off than rival CNI and than the peer group in general. Notably, CP transports coal produced by Teck Resources’ (TCK), and TCK intends to produce more coal in 2016 than it did in 2015.

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Coal outlook remains weak

According to the US Energy Information Administration, “US coal exports to decline by 19 MMst (25%) in 2016 to 55 MMst, the lowest level in ten years. Exports are expected to decline by 4 MMst (8%) in 2017.” Coal consumption in the electric power sector is expected to increase by 17 MMst (million short tons), or by 3%, in 2017, mainly due to increasing natural gas prices along with rising electricity generation.

The projected coal production in 2016 in the Appalachian and Western regions is expected to decline by 20%. However, the same agency anticipates a rise of 32 MMst, or by 4%, in total US coal production in 2017.

Notably, the iShares Core S&P 500 ETF (IVV) is a growth ETF related to the S&P 500 Index. All US-originated Class I railroads are included in the portfolio holdings of IVV.

In the next part, we’ll go through the 2Q16 intermodal revenues of our group of major US railroads.

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