CSX expects rebound from winter weather, soft coal markets - Beckley, Bluefield & Lewisburg News, Weather, Sports

CSX expects rebound from winter weather, soft coal markets

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By JIM ROSS

For The State Journal

The recent winter was hard on CSX rail operations, but it also brought opportunities for revenue growth in the near future, company executives said during a conference call on April 17.

“This year, 25 storms came back to back over several months, which means operating plans have to be constantly adjusted to serve customer needs,” Oscar Munoz, CSX chief operating officer, said. “These adjustments require more resources and can also stress our line of road and yard capacity.”

The day before, CSX announced first-quarter earnings of $398 million, down from $462 million a year ago. Total revenues were up 2 percent to about $3.01 billion, but increased operating expenses brought operating income down 16 percent to $739 million.

Domestic shipments of utility coal were up 9 percent to 17.7 million tons. Export shipments of metallurgical coal were down 11 percent to 6.2 million tons, and export shipments of thermal coal were down 19 percent to 4.3 million tons.

Although total coal volume was down only about 1 percent in the quarter, coal revenues fell about 9 percent to $662 million. Export tonnage fell as global markets for both metallurgical and thermal coal continued to soften, Clarence Gooden, chief sales and marketing officer, said.

“We think we have hit pretty much the bottom of where the global price of coal is going to be,” Gooden said. “The thermal is very low right now in Europe. The metallurgical prices are very low over in Queensland right now, so as we move toward the middle of the year, we expect to see more firming in the rate structure.”

Coal business in the northern part of the CSX service territory, which covers most states east of the Mississippi River, was up 22 percent, while deliveries to utilities in the South was down about 6 percent, Gooden said. Because runs to southern utilities are longer, that impacted coal revenues, along with soft rates for export coal, he said.

CEO Michael Ward said CSX needs coal rates to stabilize, and he thinks the railroad is getting close to that point.

“The early blessing of this cold winter is a big drawdown to the stockpiles” at power plants,” Ward said. “The demand in the North is very strong, and actually the stockpiles are below where they ideally would like to have them. And the overhang we’ve been living with in the South for the last couple of years, about three-quarters of that was eliminated here.

“So, we really do see that domestic (demand) is very strong.”

When asked about the impact of coal-fired power plant closures scheduled for early next year, Gooden said he expects the remaining plants to run more to make up for the loss of capacity.

Among other items CSX executives discussed in the call:

  • Coal from the Powder River and Illinois basins account for about half the coal hauled on the CSX system. The company expects growth in both, particularly in the Illinois Basin, where CSX is investing capital to improve service.

“We’re putting infrastructure in because we do think that Illinois Basin is going to be a continual growing market for us,” Ward said.

  • Five new gas fractionating facilities in the Marcellus shale region have come on line in recent years. Each facility produces about 15 to 20 carloads a day of products moved by rail. Also, two companies are studying the possibility of building ethylene crackers along CSX tracks. One of those would be the proposed cracker in Wood County near Parkersburg.
  • The national economy is improving as manufacturing activity increases at the same time that inventories of manufactured goods are shrinking.