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Why Union Pacific’s Carloads Jumped in the 5th Week of 2017

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Union Pacific’s carloads

In the Western United States, Union Pacific (UNP) competes with BNSF Railway, which is owned by Berkshire Hathaway (BRK-B). In the week ended February 4, 2017, UNP’s overall railcar volumes grew 9.4% to ~98,000 units, as compared to the volumes reported in the corresponding week of 2016.

Railcar volumes excluding coal and coke rose nearly 4.2% YoY (year-over-year), reaching ~72,000 units in the fifth week of 2017.

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Why coal carloads matter

In the fifth week of 2017, UNP’s combined coal (ARLP) and coke carloads rose 26.5% on a YoY (year-over-year) basis. Although UNP’s coal revenue fell 6.0% in 4Q16, fiscal 2017 brings some hope for the company, given the recent upward trend in coal prices.

Coal’s (CNX) share of the company’s revenue was 14.4% in the same quarter, as compared to 15.3% in the same period one year ago. UNP’s coal revenue depends on coal shipments originating in the Southern PRB (Powder River Basin).

According to the EIA (US Energy Information Administration), PRB production has fallen over the past few years, mainly due to the recession and competition from natural gas. PRB coal output was expected to fall significantly in 2016 for the first time since 1998. Competition from natural gas (UGAZ), primarily resulting from reduced natural gas prices, has been one of the main factors affecting coal output recently.

Advancing and declining commodity groups

Advancing commodities in the week ended February 4, 2017, included:

  • grain
  • grain mill products
  • iron and steel scrap
  • chemicals
  • lumber and wood products

Major commodity groups in negative territory were as follows:

  • metallic ores
  • primary forest products
  • petroleum products
  • waste and non-ferrous scrap
  • food and kindred products

In the next part, we’ll assess the position of UNP’s intermodal traffic in the week ended February 4, 2017.

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