GLG News by Railcar Market Experts (EU)

Toby KolstadPresidentRail Theory Forecasts

Railcar builders may have to wait two years or more for their fortunes to improve

March 25, 2009

Analysis of:Is It Time To Jump On Railcar Companies? (TRN, GBX, RAIL, ARII) | community.investopedia.com

Finding good news for railcar builders and lessors is getting harder with each new crisis in the economy. Railroad traffic has declined to levels not seen in many years and surplus railcars are clogging sidings and branch lines and annoying local residents across the nation. Railcar builders are seeing little new demand for their products and are hoping that backlogged orders will not be cancelled by distressed buyers. It is true that much of the fleet is old and will have to be replaced, but the start of that process could be delayed another few years and could be spread out over more than a dozen years into the future. It will take time before the recovery begins, and the recovery of railcar builder will trail the recovery in the overall economy.

Thomas ShewskiOwnerHigh Energy Services

Potential Setback for Central Appalachia Mine Permits

March 24, 2009

Analysis of:EPA Halts Hundreds of Mountaintop Mining Permits | www.miamiherald.com

    EPA sent two letters to the U.S. Army Corps of Engineers expressing serious concerns about the need to reduce the potential harmful impacts on water quality caused by certain types of coal mining practices, such as mountaintop mining. The letters specifically addressed two new surface coal mining operations in West Virginia and Kentucky. EPA also intends to review other requests for mining permits.     This EPA action follows shortly after the Court’s favorable ruling on the mining practice in February 2009.  This EPA action may negatively affect the producers.

Thomas ShewskiOwnerHigh Energy Services

SO2 Allowances Comments

March 24, 2009

Analysis of:2009 EPA Allowance Auction Results | www.epa.gov

    SO2 allowances are traded daily in the broker and private party markets.  The value of these credits are down substantially, affecting both the cost to generate electricity on coal and the realized sales price received by coal suppliers.

Thomas ShewskiOwnerHigh Energy Services

Potential Consequences of EPA’s Proposal Regarding Global Warming on Infrastructure Projects

March 23, 2009

Analysis of:EPA: Global Warming Endangers Health. Finding Could Have Far-Reaching Implications for Economy and Environment | www.washingtonpost.com

    Back in Spring 2007, the U.S. Supreme Court ruled in a 5-4 decision that the Environmental Protection Agency (EPA) may regulate carbon dioxide (CO2) emissions.  It appears the EPA in the new Presidential Administration may be moving forward in declaring global warming endangering health, requiring regulation on CO2 emissions.   The analysis section below discusses how this could have an effect on infrastructure projects.

Thomas ShewskiOwnerHigh Energy Services

Carbon Cap and Trade Program – Structure and Cost on Fossil Fuel-Fired Electricity

March 23, 2009

Analysis of:Obama Proposal Angers Coal Industry, Including Southern Indiana’s Duke Energy | www.newsandtribune.com

    The proposals by the Administration in Congress for a reduction in carbon dioxide (CO2) emissions include what is called a “Cap and Trade” program.  Under a Cap and Trade program, the amount of annual CO2 emissions would be capped and an entity would have to have a CO2 allowance for each ton (or metric ton depending on the final wording of the law) emitted during the year. 

Thomas ShewskiOwnerHigh Energy Services

U.S Coal Demand

March 23, 2009

Analysis of:U.S. Power Plants to Burn Less Coal in 2009: EIA | uk.reuters.com

U.S. domestic  demand coal demand is down due to lower electricity usage, less industrial demand, fuel switching to natural gas as a result of low natural gas prices and high NOx emissions costs on coal-fired generation, and high inventories at many coal plants.   U.S metallurgical coal demand is down due to steel demand being off.  Exports of metallurgical and steam coal will also be down from 2008’s robust export volumes.

Toby KolstadPresidentRail Theory Forecasts

Railroad volumes signal economic contraction has ceased

March 16, 2009

Analysis of:Rail Freight Traffic Down During First Week of March | www.aar.org

Railroad traffic volumes for both carloads and intermodal (container and trailer) shipments have stopped falling, at least in the aggregate if not for all individual commodities. Weekly reports from the American Association of Railroads (AAR) have been pretty consistent in recent weeks with carloads down 15% and intermodal shipments down 15%.  The same comment could be made for rail traffic in Canada and Mexico, although at different levels. Since railroad traffic has been a concurrent indicator of economic activity in the US, the rail data implies that the economy has stopped contracting near the end of the first quarter and has stabilized at a lower rate of output than recorded for the same period in 2008.

Toby KolstadPresidentRail Theory Forecasts

Coal and Rail are both four letter words

March 11, 2009

Analysis of:Companies rethink coal plants | www.usatoday.com

Many companies are scaling back plans to build coal fired electric generating plants, and more states are halting approvals of new coal fired plants already on the drawing boards. During January the EIA cut its forecasted increase in coal fired generating plants in half, and that was before many of the current cutbacks were announced. The Obama Administration and its allies in the Green Movement have stated in unambiguous terms their opposition to any new coal generated electricity. What this means is that there will be no increase in national coal production in coming years, and perhaps even a decrease from the current depressed levels. Since coal accounts for about 30% of all railroad carloads, this does not look good for overall railroad traffic.

Toby KolstadPresidentRail Theory Forecasts

Wabtec forecasts for 2009 freight car and locomotive business appear too rosy

March 4, 2009

Analysis of:Wabtec profit rises 9 percent in 4th-quarter on transportation strength, co. backs outlook | finance.yahoo.com

In their news conference to present the fourth quarter results and to explain their 2009 earning guidance, Wabtec executives gave some of the assumptions they used in arriving at their forecasts. They noted that new freight car production was expected to fall from the 60,000 units produced in 2008 to around 30,000 railcars in 2009 and that new locomotive deliveries were expected to fall 25%. It was noted that half of their freight car business was in the aftermarket (repair) segment that it related to fright car use and that they expected ton-miles to decrease only 5% in 2009. While these projections made sense in January, they now appear too optimistic.  

Toby KolstadPresidentRail Theory Forecasts

Will the railroads be able to repeat their 4Q08 performance during 2009?

February 23, 2009

Analysis of:US rail companies steam through the downturn in profit | www.ft.com

Although railroads saw their traffic volumes decline significantly in the fourth quarter, they managed to keep their revenues from falling as fast by flexing their pricing power during the early part of the year and raising rates in the face of weak or falling demand.  The situation in 2009 looks to be very different; traffic volumes are falling much faster and much farther than they did during the last quarter of 2008, and increasing freight rates will not be able to compensate for that much lost revenue. For the first 6 weeks of the year, carload traffic is down 16.1% and intermodal traffic is down 13.2%, and railroad executives are forecasting only single digit increases in freight rates.

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