Hi-Crush Partners Fell Due to Concerns about Frac Sand Demand

Hi-Crush Partners fell 7.8%

Hi-Crush Partners (HCLP) stock fell 7.8% on September 26 after the company announced that it will temporarily idle the dry plant operations at its Whitehall facility. “Our strategic decision to temporarily idle Whitehall’s dry plant was driven by recent, temporary softness in completions activity and frac sand demand,” said Laura C. Fulton, Hi-Crush Partners’ CFO.

The announcement concerned investors about the demand prospects for frac sand. As a result, there was a sell-off in U.S. Silica Holdings (SLCA) stock as well.

Hi-Crush Partners Fell Due to Concerns about Frac Sand Demand

While the longer-term growth prospects for frac sand look attractive, the volatility in frac sand stocks was high enough to keep conservative investors at bay. Pricing pressure resulting from oversupply or lower-than-expected demand growth continues to be a key risk for these stocks in the long term.

Temporary softness

“This reduced level of expected activity is reflected in our updated guidance for sales volumes of 2.8 million to 3.0 million tons for the third quarter we previously communicated,” added Fulton.

“Despite temporary market dislocations, we continue to expect strong demand for Northern White frac sand and are continuing with the expansion of rail capacity at Whitehall, as well as our customer-driven expansion of our Wyeville plant and the construction of the second Kermit facility,” said Robert E. Rasmus, Hi-Crush Partners’ CEO.

U.S. Silica Holdings fell 7.5% on September 26. The stock has fallen 46% YTD (year-to-date). The above graph compares Hi-Crush Partners and U.S. Silica Holdings’ performance in 2018. The Energy Select Sector SPDR ETF (XLE) has risen 3%, while the VanEck Vectors Oil Services ETF (OIH) has fallen 5% YTD.