http://www.24news.ca/the-news/economic-news/100744-tank-car-maker-sees-shift-away-from-crude-by-rail
Tank car maker sees shift away from crude-by-rail
Published Thursday, February 19, 2015
The largest maker of rail cars in North America says leasing rates for
oil tank cars have fallen amid the plunge in crude prices.
Dallas-based Trinity Industries Inc., which manufactures rail cars for
sale and lease, said it has seen the bulk of its orders shift away from
oil tank cars, but demand should increase in the spring when governments
in the United States and Canada finalize new crash-resistance standards
intended to prevent spills and fires in derailments.
“Market demand drivers for new rail cars shifted from largely
crude-by-rail related at the start of the year to more broad-based
market drivers as [2014] progressed,” said Steve Menzies, a Trinity
vice-president who runs the company’s rail division.
“We’re seeing strong demand for tank cars that carry things other than
crude oil [like chemicals and other industrial liquids]. ... That really
is driving the tank car market,” Mr. Menzies said on a conference call
with analysts to discuss the company’s financial results.
The drop in oil prices to less than $50 (U.S.) a barrel from more than
$100 in the summer has hammered energy companies’ exploration and
production budgets, and prompted railways to cut growth forecasts as
drillers balk at the relatively high cost of reaching markets by rail.
Trinity executives said they do not provide details on the orders for
tank cars versus other kinds of rail cars, but said the company expects
to deliver about 33,000 cars this year, and that most of the outstanding
order for oil tank cars will be filled.
Greenbrier Cos., another U.S. maker of tank cars, recently said a
customer had sought to cancel an order after oil prices began falling.
Mr. Menzies said Trinity’s contracts do not include cancellation
provisions, and would not say if the company had been approached to make
allowances for customers pinched by lower lease rates or a change in
demand for crude by rail.
In addition to rail car sales and leasing, Trinity makes barges that
carry oil and other industrial goods, highway guardrails and equipment
for the wind energy business. Most of the company’s tank car leases are
long term, and Trinity is not affected by the weakness in the short-term
lease market.
Mr. Menzies said lower oil prices affect Trinity’s customers in
different ways; refineries benefit but explorers and producers suffer.
Many of these producers have slashed production plans and exploration
budgets amid the plunge in crude prices that has made moving oil by rail
a money-losing venture for many shippers.
In response, Canadian Pacific Railway Ltd. reduced its 2015 outlook to
140,000 car loads of crude from 200,000, but the company is still
expecting an increase over 2014 as new terminals come onstream.
Janet Drysdale, Canadian National Railway Co.’s vice-president of
investor relations, said at a conference in Florida on Thursday that the
plunge in prices has made it difficult to predict how much oil will be
moving on the rails.
CN does not break out expected crude-only volumes, but said its energy
business, which includes crude and sand used in hydraulic fracturing,
will grow by 35 per cent this year to 292,000 carloads.
“There’s no question the pattern of growth is going to be lumpy and
unusual,” Ms. Drysdale said.
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