The Surprising Loser of Cheap Natural Gas
Mar 25th 2012 11:06AM
Updated Mar 25th 2012 11:08AM
This video is part of our "Motley Fool Conversations" series, in which consumer-goods editor and analyst Austin Smith discusses topics around the investing world.
In today's edition, Austin talks about one of the surprising losers of cheap natural gas, and that's railroads. Cheap natural gas prices suppress the demand for coal, one of the railroad sector's biggest divisions. Coupled with a mild winter, we see CSX (NYS: CSX) realizing a 3% decline in coal shipments.
Austin thinks the effect from cheap natural gas is a bit larger than that. though, as CSX also saw a 15% jump in metals, of which coal is a major input. So increased metal production could counterbalance, to some extent, cheap natural gas prices and a mild winter.
This isn't to say that cheap natural gas makes railroads a bad bet, though. In fact many rail companies are seeing great quarters, with retail sales growing, oil above $100 a barrel, and vehicle sales rising. What it does mean, though, is that railroads should expect to be less dependent on coal shipments for at least the next few years. Should retail sales retract, metal production wane, or oil fall below $100 a barrel, cheap natural gas would have a more significant impact.
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At the time this article was published Austin Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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