Coal news and updates

CSX expects further decline in coal business

The market for hauling coal continued its decline for CSX Corp. in the second quarter, and the company’s executives expect it to get worse before it gets better.

The reasons are familiar: Low natural gas prices encourage electric utilities to burn gas instead of coal; the export market is weak; and power plants have larger stockpiles of coal, leading to less demand to replenish them.

In its quarterly financial report last week, CSX said its coal volumes were down 11 percent in the quarter compared with last year, while coal revenue decreased 15 percent. For the first six months, volumes were down 6 percent and revenues 10 percent.

“Domestic coal volumes will decline close to 15 percent in the third quarter, and for the full year we expect volume to be down approximately 10 percent,” Frederik Eliasson, CSX’s chief financial officer, said during the quarterly conference call with investment analysts. “Export coal volume is expected to be lower in the third quarter, reflecting global oversupply and the strong U.S. dollar.”

Later in the call, CSX CEO Michael Ward said he thought there is “probably more downside to the coal volume next year than there is upside.”

CSX executives told analysts power plant stockpiles in both the North and the South are higher than normal. Gas prices are expected to remain low, and there is research indicating the installation of more gas acreage in the region CSX serves, which is most of the United States east of the Mississippi River. All three trends point to decreased utility consumption of coal, they said.

As gas prices remain low, demand for drilling material CSX hauls also is down, Eliasson said. CSX is hauling less crude oil from the Bakken shale region of North Dakota, and it is hauling less frac sand, too, he said.

“Both markets are expected to decline by about 15 percent in the third quarter. However, strength in plastics and LPG (liquefied petroleum gas) will keep the chemicals portfolio stable,” he said.

Overall, CSX reported net earnings of $553 million in the second quarter, up from $529 million a year ago. Net income for the first six months was $995 million, up from $927 million last year.

Operating income in the quarter reached $1 billion for the first time in company history.

At the end of the call, executives were asked to comment on new tank car regulations that aim to reduce hazards from hauling hazardous or flammable materials such as Bakken crude. CSX has a route in West Virginia through Charleston, Huntington and other communities hauling crude from North Dakota to the East Coast.

“I think we are by and large very pleased with the new tank car standards they come out with,” Ward replied. “We think it’s a much safer vehicle.

“We were a little bit surprised that the thermal blanket was not included, and we will continue to push for that as an industry because we think it gives an extra layer or safety at not a great expense. As far as the long-term impact on the business, obviously as you know, we don’t own the tank cars, the customers or leasing companies do. Our early read is that most plants retrofit their cars or buy new cars that meet those standards.

“We think longer term that this car is a better car or safer car.”

source: http://www.statejournal.com