Smoke rises from a derailed cargo train in East Palestine, Ohio, on Feb. 4, 2023.
Dustin Franz/AFP/Getty Images
Earlier this month, a
Norfolk Southern
train derailed in Ohio near the village of East Palestine, resulting in the release of vinyl chloride into the environment.
As the fallout grows from the derailment, investors will have to consider new developments. Here are seven things to know about the situation, along with some context.
What Happened?
A Norfolk Southern (ticker: NSC) train carrying hazardous chemicals derailed in East Palestine, Ohio, on Feb. 3. Gas had to be released from the train on Feb. 7 to prevent an explosion. Service on the rail line has been restored, and the National Transportation Safety Board, the Environmental Protection Agency, and Norfolk Southern are still on site assessing the situation and providing assistance for local families.
The Ohio governor Mike DeWine ordered a 1-mile-by-2-mile area around the derailment site to be evacuated on Feb. 6.
“Norfolk Southern has been closely coordinating with the Columbiana County Health District, Ohio Department of Health, Ohio EPA, and the U.S. EPA, as well as its own experts and contractors to monitor and mitigate environmental issues and concerns,” the company said on its website, where it is providing updates about its response.
Norfolk Southern didn’t immediately respond to a request for comment about the derailment.
What is Vinyl Chloride?
Vinyl chloride is a colorless, odorless, flammable gas. Most vinyl chloride goes into making polyvinyl chloride, or PVC, which is a hard plastic used in a number of common products, such as plumbing pipes.
Vinyl chloride is a hazardous substance and can cause cancer, according to the EPA.
Who Makes It?
In the U.S., vinyl chloride is produced by
Westlake
(WLK); OxyChem, which is owned by
Occidental Petroleum
(OXY); Olin (OLN); divisions of
Formosa Plastics
(1301.Taiwan); and
Shin-Etsu Chemical
(4063.Japan).
Most of the production assets are in Texas and Louisiana, where the companies have easy access to raw materials and chemical engineering expertise.
Formosa said it doesn’t believe any of its product was on board the derailed train. The other companies haven’t responded to a request for comment.
Railroads Move a Lot of Chemicals
U.S. railroads move about 2.2 million carloads of chemical products each year, out of a total of roughly 12 million carloads. Gases, such as vinyl chloride, only account for about 2% of total shipments.
Railroads account for about 40% of all long-haul freight miles in the U.S.
Is It Safe?
The railroad industry says transporting hazardous materials is safe, and the American Association of Railroads says train accidents have fallen roughly 33% over the past 20 years. Hazardous material accidents are down 55% over that span.
“Railroads have approximately 10% of the hazmat accidents [that] trucks have despite roughly equal hazmat ton-mileage,” say current Association materials available on its website, adding that more than 99.9% of shipments reach their final destination with no hazardous material release.
What Does This Mean for the Stock?
Norfolk Southern shares are down about 7% since the derailment occurred. The move has shaved about $4 billion off Norfolk’s market value. Shares of the vinyl chloride makers are up a little on average.
In comparison, the
S&P 500
is off about 1% over the same span, while the
Dow Jones Industrial Average
has gained just under 1%.
But longer-term, the derailment shouldn’t be a major factor for Norfolk shares, when looking at history.
“If history is a guide, the unfortunate event may not have much of a long-term impact on the rail carrier’s [stock price],” wrote Cowen analyst Jason Seidl in a Tuesday report. “We would view any noteworthy pullback as a buying opportunity.”
He rates shares Buy and has a $259 price target for shares.
Write to Al Root at allen.root@dowjones.com
Credit: marketwatch.com