Fiery Oil-Train Crash Probed by U.S. Rail, Pipeline Regulators
Comment of the Day

February 17 2015

Commentary by Eoin Treacy

Fiery Oil-Train Crash Probed by U.S. Rail, Pipeline Regulators

This article by Nancy Moran and Edward Dufner for Bloomberg may be of interest to subscribers. Here is a section: 

The draft rule also would require that new cars be built with steel shells that are 9/16th of an inch thick, people familiar with the plan said. The walls of the current cars, both DOT-111s and the newer CPC-1232 models, are 7/16th of an inch thick.

Monday’s derailment was the second in three days in North America. Canadian National Railway Co. shut its main line linking western and eastern Canada after an eastbound train carrying crude oil came off the tracks in Ontario.

The train of 100 cars, all carrying crude from Canada’s oil-producing region of Alberta to eastern Canada, derailed just before midnight Saturday in a remote and wooded area about 30 miles (48 kilometers) north of Gogama, Ontario, spokesman Patrick Waldron said in an e-mail.

Eoin Treacy's view

There is still a great deal of opposition to building additional pipeline infrastructure in the USA, not least the Keystone project. However, considering the economic benefits of increasing domestic supply the product will find its way to market one way or another. The growth of shale-by-rail has been the primary response to the lack on energy infrastructure serving North Dakota in particular.  This is regardless of the fact that trains carrying such large heavy cargoes run a higher risk of derailing. It is only a matter of time before the sector is more heavily regulated suggesting demand for new upgraded railcars is likely to increase. 

Railcar manufacturers have not been immune from the turndown in energy prices but the majority found at least short-term support from late December.  Reversionary rallies are currently underway but periods of support building will probably be required before they can resume their medium-term uptrends. 

Greenbrier Companies (Est P/E 10.61, DY 1.04%) support above $40 again in December and will need to continue to hold that low if support building is to be given the benefit of the doubt. 

American Railcar Industries (Est P/E 11.57, DY 2.9%) continues to firm from the $50 area. 

Freightcar America (Est P/E 54.45, DY 1.3%) represents a much more volatile trading environment compared to the above two charts and is therefore much less consistent. 

Wabtec Corp (aka Westinghouse Air Brake Technologies Corp Est P/E 24.98, DY 0.27%) is internationally diversified with approximately 48% of revenue originating outside the USA. The share bounced back impressively from its October low and found support in the region of the 200-day MA from January. A sustained move below $80 would now be required to question the consistency of the medium-term advance. 

Trinity Industries (Est P/E 7.25, DY 1.33%) halved between September and January and is currently unwinding its oversold condition relative to the 200-day MA. It will need to find support above $25 on the first major pullback to demonstrate more than a short-term return to demand dominance.   


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