Canadian Manufacturing

CN predicts commodities surge will drive growth

Canadian National Railway is forecasting increasing demand for Canadian and U.S. commodities from emerging economies will drive growth in 2011.



MONTREAL—Canadian National Railway expects continued demand from emerging economies for Canadian and U.S. commodities will drive growth in 2011.

Last year’s recovery was helped by sizable government stimulus and inventory replenishment.

But CN’s chief financial officer, Luc Jobin, said that offshore demand for commodities—including coal, fertilizers and forest products—could be an important factor this year.

China’s demand for Canadian forest products, for example, could be sizable as it looks for new supply to offset local deficiencies and new export taxes from Russia.

Lumber prices have increased on the back of Chinese demand while U.S. demand remains weak.

Jobin said the Chinese look to buy the entire production of idled mills or facilities whose product is not destined for the U.S. CN is working with container companies and western ports to accommodate the higher demand.

That could mean a potential shift of carloads from the U.S. south to ports in Vancouver and Prince Rupert, B.C.

“We had the benefit in 2010…of having an economy that came in stronger than anybody expected last fall,” president and CEO Claude Mongeau told analysts. “In the year, we had the strongest carload growth of any railroad in the industry.”

For the full year ended Dec. 31, CN earned $2.1 billion, on nearly $8.3 billion of revenue. That compared with $1.85 billion on almost $7.4 billion in revenue in 2009.

Excluding special items—including a $131-million after-tax gain from the sale of its Oakville rail property near Toronto—net income was nearly $2 billion, up from $1.5 billion in 2009.

The higher Canadian dollar reduced net income by $12 million in the quarter and by $103 million in the year.

CN is aiming for double-digit growth in 2011 and $850 million in free cash flow. It plans to spend about $1.7 billion on capital projects, including $1 billion on track improvements.

Operating expenses increased by nine per cent in the quarter to $1.34 billion, with fuel increasing 24 per cent and labour and fringe benefits up two per cent.

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