Houston — Across the board, the four major Class I railroads said low natural gas prices, coal plant retirements and a mild winter drove declines in coal volumes in the first quarter and have forced the railroads to begin looking at structural changes to their networks.
아직 가입하지 않으셨나요?
일일 이메일 알림과 구독자 노트를 받고 이용 경험을 내게 맞게 설정하세요.지금 가입하세요
"I think our utility coal franchise is going to be pressured for a considerable amount of time," Alan Shaw, executive VP and CMO of Norfolk Southern, said on the company's first quarter earnings call. "We need to get the economy back and running so industrial and commercial load comes back. And we're also going to need to see an overall increase in energy prices. Prices in the PJM are in the teens right now for electricity, and that is not going to promote coal burn."
According to Association of American Railroads data, US coal carloads totaled 833,542 in the first quarter, down 16.7% from the year-ago period.
Coal carload originations by the four major Class I US railroads totaled 901,650, down 44.7% year on year.
NS declined the most out of the four railroads, falling 32.1% compared to the year-ago period, while UP followed, down 22.3% in Q1. CSX declined 16.7% and BNSF fell 7.7%.
At Union Pacific, Kenny Rocker, executive VP of marketing and sales, said on its Q1 earnings call that "there is nothing that leads us to believe there's going to be a large upside with coal" given the drop in prices "to some levels that we haven't seen in quite a while."
US benchmarks for Central Appalachian and Illinois Basin coal are at several year lows at $34.25/st and $31.50/st, respectively, while Powder River Basin 8,800 Btu/lb coal remains low at $12.05/st as it competes with gas for power generation.
CSX executives also addressed weak pricing in both the domestic and seaborne market.
Compared with the year-ago period, CIF ARA was assessed down 38.5% at $36.25/mt on Thursday, and from 2018, the assessment is down 59.7%. The strong decline in seaborne pricing has only added to the pressure in the US markets caused by natural gas prices and helped drive fewer export volumes at CSX in the first quarter.
Additionally, this year the coal markets and railroads have been impacted by the coronavirus pandemic.
According to Mark Wallace, executive VP and chief sales and marketing officer at CSX, "most of our coal, especially on the thermal side, goes to India. India is closed down for a month. When that reopens, anybody's guess. So no coal is going to India right now."
"The markets have changed dramatically," Wallace said. "So there's clearly some headwinds out there. And benchmarks are one, but demand is clearly the driving force here."
On the domestic utility side, NS executives discussed the massive impacts from declined demand.
"Stockpiles in the utility coal franchise right now are incredibly high," Shaw said. "They're at about 125 days coal burn, and March was at a national record low at 29 million st. Last year, 60% of our coal volume was in the utility coal network. That volume was down 44% in the first quarter of this year."
"We understand that the nation's utility coal franchise is in a secular decline," he continued. "And so what you see from us is a response and working with our customers on ways to promote coal dispatch relative to natural gas."
Given the drop in volumes, NS does expect changes in its coal infrastructure.
"We continue to aggressively size our train plan to the changing business levels," Michael Wheeler, executive VP and COO at NS, said on its earnings call.
"Do we have a lot of buildings out there along the network that maybe we don't need any more?" Shaw said. "Structures that, again, attract maintenance cost, they attract electricity cost. They attract property assessments. Those are like one area we might look at. We've seen our coal franchise shrinks considerably. Do we have surplus assets in coal that we need to reexamine and relook at?"
When asked on the earnings call whether UP would consider structural changes to the railroad following the persistent reduction in coal tonnage, executives emphasized there would be changes made.
"The coal network was built to handle way more trains than we're handling," James Vena, COO at UP, said. "So it starts off on a separate piece of the railroad. So there's no ifs, ands or buts that we're going to look at that."
"We've got plans to take advantage and use some of that maintenance and the capital that we've put in the ground there," Vena continued. "We've got a plan of when some segment of the railroad sees a downturn in traffic that we fix it."
"Looking ahead, we expect continued challenges in coal as natural gas futures remain low and customer stockpiles stay at high levels," Rocker, said on the company's earnings call. "Weather conditions will also continue to be a factor."