Moody’s downgrades rail sector outlook as coal shipments drop – by Eric Atkins (Globe and Mail – May 17, 2016)

A plunge in the amount of freight moving on North American railways has spurred Moody’s Investors Service to downgrade the outlook for the sector to negative.

An “unprecedented” 37-per-cent year-over-year drop in coal shipments in April will help drive down overall freight volumes down by about 4 per cent this year and send revenues down by as much as 2 per cent for the major carriers, said Rene Lipsch, a Moody’s analyst.

“North American railroads face deeper and longer-lasting declines in freight volumes than we had previously anticipated,” Mr. Lipsch said in a note to clients on Monday. Coal carloads, which account for almost 30 per cent of the rail traffic in North America, have fallen by 33 per cent this year, according to the Association of American Railroads.

Power utilities are converting to cheap and and cleaner-burning natural gas pouring out of newly tapped shale fields in the Bakken region of North Dakota and the Canadian Prairies.

“Power generation from natural gas surpassed coal on a monthly basis for the first time in April, 2015, and forecasts from the U.S. Energy Information Administration show that the proportion generated from natural gas will exceed that of coal on annual basis in 2016,” Mr. Lipsch said.

At the same time, thermal coal consumption is down after a mild winter, and steel makers have cut production and reduced purchases of metallurgical coal and ore.

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