Wednesday, June 04, 2014

UBS: “No collapse in tank cars imminent”

Written by  William C. Vantuono, Editor-in-Chief
“Tank car concerns are creating quite a stir,” says Eric Crawford of UBS Investment Research, commenting on the tank car market.

“CBR (crude by rail) volumes are moderating, but a collapse in tank cars is not imminent,” says Crawford in analysis released June 4, 2014. “Petroleum and petroleum products volumes represent one-third of tank car shipments, with chemicals representing the other two-thirds year-to-date. Petroleum and petroleum products volumes are up 7% year-over5-year, while chemicals are up 1%, indicating that demand for both categories is holding up well.

“As for tank car supply and demand, we estimate CBR capacity at 1.7 million barrels per day. This may still lead to oversupply, assuming CBR demand is 1.4 million barrels per day. But CBR represents only about 20% of tank car shipping volume, and operating at about 85% capacity utilization, while less than ideal, hardly represents a collapse.

“Railcar orders in recent quarters have been robust, and have shifted away from tank cars toward covered hoppers. With the industry backlog moving toward a more balanced profile, we believe a scenario where railcar deliveries drop off sharply is becoming less likely. . . . We continue to believe a retrofit [of older cars] over replacement makes the most sense. Phasing out as many as 70,000 tank cars at $130,000 per railcar would cost over $9 billion, would take at least three years to implement, and the earliest build slots are not available until late 2015, potentially leaving safety an open concern in the meantime. Retrofitting tank cars may be a more viable and effective option. Should new regulations emphasize tank car retrofits over a phaseout of older cars, we believe the benefit to manufacturers could be muted, as many more companies offer repair services.”

UBS’s full report can be accessed by clicking HERE.