(Reuters) - Canadian Pacific Railway (CP.TO) is spending C$300 million ($300 million) to improve its northern mainline across the Canadian Prairies to take advantage of strong global demand for potash and grains.
The upgrades on the line between the grain-trade center of Winnipeg, Manitoba, through Saskatchewan to Edmonton, Alberta, will allow it to handle longer, heavier freight trains, and will provide a better back-up if bad weather shuts down the railway’s southern cross-Canada mainline, CP Chief Executive Fred Green said.
“It’s been an aspiration for a long time but we couldn’t find the collective business case because we already had a line across the continent,” Green told Reuters in an interview.
The impetus to upgrade the line came from continuing strong demand from Asia for the crop nutrient potash and for Canada’s two biggest crops, wheat and canola.
The province of Saskatchewan is home to much of the world’s known potash reserves. The northern line heads from Edmonton south to Calgary and then west to the Port of Vancouver, a major gateway for goods destined for Asia.
Weather provided another push for the line. Earlier this year, CP, Canada’s second biggest railroad, experienced a brutal six months of flooding and other weather disruptions on its network in Western Canada, which pummeled its earnings and stock price.
“You could argue that the weather experience was kind of the icing on the cake,” Green said in a telephone interview from Montreal.
Work on upgrading the line started this spring and will take about 2-1/2 years to complete, Green said.
This year’s funding portion has been included in CP’s C$1 billion capital investment budget for 2011.
CP, whose biggest competitor in Canada is Canadian National Railway (CNR.TO), is also upgrading two lines running from the Prairies south into the United States, after flooding recently disrupted both.
“We are going to increase capacity on both lines so that if either of the lines are washed away it will minimize impact on our customers,” Green said.
The investment may also be helpful if the expected dismantling of Canada’s Wheat Board results in more grain being shipped south into the United States from the Prairies at the expense of overseas exports.
Canada’s Conservative government plans to present legislation this autumn to do away with the Canadian Wheat Board’s monopoly on sales of Western Canadian wheat and barley. The monopoly would end in August 2012.
Shares of CP were 2.6 percent lower at C$49.48 on the Toronto Stock Exchange on Wednesday afternoon, down along with other North American rail stocks as uncertainty about the U.S. economy weighed on industrial stocks.
Demand from retailers in North America remains “very soft”, Green said.
”We have had a fall peak -- containers arriving with merchandise for Christmas -- but it’s a muted peak relative to the past. I have no reason to believe that that’s going to change substantially based on my dialogue with the retailers.
“With the uncertainty in the marketplace about jobs etc, people are a little reluctant to build inventory,” he said.
Additional reporting by Maneesha Tiwari in Bangalore; Editing by Joyjeet Das and Peter Galloway