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Which Commodity Groups Drove Union Pacific’s Carloads Higher?

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Union Pacific’s carloads

Union Pacific (UNP) competes with Berkshire Hathaway–owned BNSF Railway (BRK-B) in the Western US. In the week ended November 5, 2016, UNP’s overall railcars fell just 0.4% to 96,000-plus units from nearly 97,000 units in the corresponding week in 2015.

UNP’s railcars excluding coal and coke rose 2.5% to 71,000 units in the latest reported week of 2016. The percentage decline in UNP’s carloads in the week ended November 5, 2016, was in line with the US railroads’ decline in the same category.

Investors interested in a detailed look at UNP’s 3Q16 results can refer to Market Realist’s Union Pacific’s 3Q16 Earnings Show a Topsy-Turvy Ride Ahead.

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Why coal carloads matter

In the reported week, UNP’s combined coal (ARLP) and coke carloads fell 7.7% on a year-over-year basis. UNP’s coal revenues fell ~20% in 3Q16.

Importantly, coal’s (CNX) share of the company’s revenues was almost 15% in the same quarter, down from 17.2% in 3Q15. UNP’s coal revenues depend on coal shipments originating in the Southern Powder River Basin (or PRB).

According to the EIA (Energy Information Administration), the PRB’s production has declined over the past few years, mainly due to the recession and competition from natural gas. Its coal output is expected to fall significantly in 2016—the first such fall since 1998. Competition from natural gas (UGAZ) resulting from reduced natural gas prices has been one of the main factors affecting coal output.

Advancing and declining commodity groups

Commodities in the green zone in the week ended November 5, 2016, were:

  • grain
  • primary forest products
  • chemicals
  • motor vehicles and equipment

The major commodity groups in negative territory were:

  • metallic ores
  • nonmetallic minerals
  • petroleum products
  • waste and non-ferrous scrap
  • pulp, paper, and allied products

For a comparison with the previous week’s freight volume data, please read Market Realist’s Gauging the Economy via Freight Traffic: Week Ended October 29. Investors interested in railroad stocks can get more information on Class I US railroads on Market Realist’s Railroads page.

In the next part, we’ll assess the position of UNP’s intermodal traffic in the week ended November 5, 2016.

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