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A Rise in Coal Volumes Failed to Lift Canadian Pacific’s Carloads

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Canadian Pacific’s Carloads

Canadian Pacific (CP) registered a 3.9% fall in total railcars in the week ended November 12, 2016. The company hauled 31,000 railcars in the same week against 32,000 plus railcars in the corresponding week in 2015.

CP’s railcars excluding coal fell 7.3% to settle at 25,000 units in the latest reported week of 2016. This was 27,000-plus units in the corresponding week in 2015. The percentage decline in CP’s carloads was in contrast with the rise recorded by Canadian railroads in this category.

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For a comparison with the previous week’s freight volume data, please read Key Railroads’ Freight Volumes for the Week Ended November 5.

Why coal carloads matter for CP

Canadian Pacific normally receives 70% of its revenues from Canada while 30% come from the US. CP’s coal carloads rose 13.9% to 6,000 railcars in the reported week of 2016, against Canadian National’s (CNI) 4.7% rise in the same category.

Coal accounted for 10.6% of revenues and 12.3% of carloads for CP in 3Q16. The company transports metallurgical coal meant for export through Metro Vancouver’s port. Its coal traffic in Canada begins primarily from Teck Resources’s (TCK) mines in southeastern British Columbia.

In the past year, coal’s production and demand is under pressure due to depressed prices, environmental concerns, and the shift of coal-fired power plants to natural gas–based electricity generation. Even the US steel producers’ capacity utilization has not seen marked improvement in the recent quarter. However, TCK has issued slightly high production guidance for 2016 compared with 2015.

If this goes according to plan, then we should see either more coal hauling by CP in 2016 or less contraction in the company’s coal volumes in the same year compared to its peers.

All of the US-based Class I railroads make up the portfolio holdings of the WisdomTree Earnings 500 Fund ETF (EPS).

The front-runners and the back-benchers

Main advancing commodity groups were:

  • potash
  • forest products
  • metals, minerals, and consumer products

The declining commodity groups were:

  • Canadian grain
  • US grain
  • fertilizer and sulfur
  • chemicals and plastics
  • crude oil

For more information on major US railroad stocks (UNP), please visit Market Realist’s Railroads page.

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