uploads///CP Carloads

Not Even the Rise in Coal Volumes Could Stop the Fall in Canadian Pacific’s Carloads Last Week

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Sep. 16 2016, Updated 6:04 p.m. ET

Canadian Pacific’s carloads

Canadian Pacific (CP) registered a YoY (year-over-year) fall of 8.9% in total railcars in the week ending September 10, 2016. The company hauled 29,000 railcars last week, as compared to ~33,000 railcars in the corresponding week last year. CP’s railcars excluding coal fell 19.5%, settling at 22,000 units last week, as compared to ~28,000 units in the corresponding week last year.

However, investors should note that in terms of YoY changes in carloads, CP has been performing better than its arch-rival, Canadian National (CNI), for the past few weeks.

Notably, CP earned 70% of revenues from Canada last year, while 30% came from the US. CP’s coal carloads rose 6.6%, in sharp contrast to the fall reported by Canadian National in the week ending September 10, 2016.

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Why coal carloads matter for CP

Coal accounted for 10% of CP’s revenues and 12.3% of carloads in 2015. By and large, CP transports metallurgical coal meant for export through Metro Vancouver’s port. Its coal traffic in Canada begins primarily from Teck Resources’ (TCK) mines in southeastern British Columbia.

During the past year, coal’s production and demand is under pressure from depressed prices, environmental concerns, and the shift of coal-fired power plants to natural-gas-based electricity generation. Notably, US steel producers’ capacity utilizations did not see marked improvements either during the most recent quarter. Still, TCK has issued a high production guidance for 2016, as compared to its guidance in 2015.

If all goes according to plan, we should see CP hauling more coal in 2016, or else less YoY contraction in the company’s coal volumes as compared to peers.

Notably, all the US-born Class I railroads (UNP) have exposure in the WisdomTree Earnings 500 Fund ETF (EPS).

Frontrunners and backbenchers

Commodity groups such as US grain and forest products rose during the week ending September 10, 2016. Canadian grain, US grain, fertilizer and sulfur, chemicals and plastics, crude, metals and minerals, and automotive all fell last week.

In the next part, we’ll examine Canadian Pacific’s intermodal traffic.

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