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Coal, railroad earnings slump
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By staff and wire reports
Railroad and coal companies prove to be connected at the silo: When one drops, so does the other, so a drop in Powder River Basin coal production has caused a similar drop in shipping during the first half of 2009.ARCH COAL: Arch Coal Inc. shocked Wall Street Friday with a 20 percent drop in sales during the second quarter of this year.
Arch Coal’s earnings are down $178 million compared to the first half of last year. It owns Black Thunder, Jacob’s Ranch, Coal Creek and North Rochelle mines in Campbell County.
The St. Louis-based company also lowered its outlook for the year and said it plans further cuts to production and capital spending because of huge stockpiles of coal and soft prices for natural gas.
In the Powder River Basin, second quarter 2009 volumes were reduced by 1.8 million tons from the first quarter, reflecting the idling of a second dragline and associated equipment at the Black Thunder mine in early May.
“Arch’s operational performance in the second quarter of 2009 relative to the first quarter was hampered by lower average price realizations in our Powder River Basin and Central Appalachian regions as well as the cost impact of lower volumes and four longwall moves,” said John W. Eaves, Arch’s president and chief operating officer.
Arch, which fuels about 6 percent of all U.S. electrical generation, reported that it lost $15.1 million in the three months that ended June 30. A year ago, it earned $113 million. The company’s shares fell 2.7 percent to $16.41 in premarket trading Friday. In April, Arch said it was slashing its U.S. production this year by an additional 4 million to 7 million tons, down from the 120 million to 127 million tons the company had forecast in January.
Arch’s chairman and CEO Steven Leer While called the year “challenging” but added that it should improve.
“We believe that the trough of the current coal market cycle has been reached and anticipate better industry supply-and-demand balance and improving company financial performance in the second half the year,” Leer said.
“Looking ahead, we are positioning the company to capitalize on the inevitable rebound in coal demand,” he said.
On Tuesday, Peabody Energy kicked off the coal sector’s latest earnings parade by saying its second-quarter profit tumbled by two-thirds — well short of analyst expectations.
RAILROADS: BNSF reported coal revenues were down $27 million compared to second quarter earnings last year. Coal made up 27 percent of BNSF’s freight revenues, which decreased by $1.13 billion compared to the second quarter last year.
Union Pacific Corp. reported coal freight revenues down 22 percent. The company as a whole is down $63 million compared to the second quarter of 2008.
ARCH’s POWDER RIVER NUMBERS
- Tons sold: Dropped 3.5 million tons compared to last year.
- Sales price per ton: rose $1.18 compared to last year.
- Total operating cost per ton: rose $1.25 compared to last year.
COAL MARKET TRENDS
- Arch estimates that coal consumption used in power generation declined more than 10 percent through the end of June.
- Coal production declined 5.6 percent year-to-date.
- Weak natural gas prices remain a concern, but the swift and drastic decline in rig counts should begin to improve in the next 12 months.
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