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The sector has been inundated with a weak year-to-date rail volume trend of late, which Fitch considers a reflection of shifts in demand patterns for key commodities as domestic production of unconventional oil and gas resources continues to grow.
Rail carload traffic data for April provided by the Association of American Railroads found coal carloads were down by 16.6% versus April 2011, the largest year-over-year decline for coal shipments on record.
Year-to-date coal carloads are down 11.3%.
“The biggest factor driving weak domestic demand for coal continues to be the declining price of natural gas produced in the US and the ongoing shift away from coal as a feedstock for electrical utilities,” Fitch said.
“In addition, warm winter weather has contributed to weak coal consumption as electricity demand has slumped in 2012.”
Fitch had more hope for the broader US economy, viewing demand patterns for other key industrial products as more resilient.
It reported shipments of autos and auto parts continued to remain quite strong, with April freight volumes up by 21.1%.
“This mirrors the broader strength in US consumer demand for new vehicles that has been evident since the start of the year,” Fitch said.
In addition, Fitch said the shift away from coal toward natural gas as the preferred source of energy for power plants was evident in the sharp increases in rail volumes for commodities linked to rapidly growing production of shale oil and gas in newly developed North American shale plays.
“The data points to a mixed picture for industrial demand this year as traditional powerhouse commodities like coal see their share of rail traffic fall relative to other categories,” Fitch said.
While management of capacity, cost control and solid pricing power had enabled major railroads to weather the 2012 carload weakness, Fitch said it would not be enough to improve mid-term operations.
“In light of the unevenness of the US recovery, the outlook for rail volume growth over the remainder of the year appears relatively weak,” Fitch said.
