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CSX Sees Coal Market Stabilizing in 2017


The State Journal

Stronger coal traffic in the fourth quarter wasn’t enough to offset other weaknesses in the rail business as CSX Corp. reported an 18 percent decrease in net income for the quarter and a 13 percent decrease for the year.

CSX executives are optimistic that after several years of decreasing volumes and revenues in the coal business, things will turn around in 2017.

Net income in the fourth quarter was $458 million. Net income for calendar year 2016 was $1.714 billion.

“We do feel much, much better than what we felt going into previous years about our coal businesses,” Frederik Eliasson, chief sales and marketing officer, said in a conference call with investment analysts Jan. 18 following release of the fourth-quarter earnings report.

Higher natural gas prices are leading some utilities to dispatch more electricity generated by coal, and the export market is beginning to look up for American coal producers, executives said.

“Export coal will continue to benefit from China’s production cuts, driving increased demand for U.S. coal,” Frank Lonegro, chief financial officer, said. “In particular, the metallurgical benchmark has strengthened year-over-year attracting increased production from U.S. coal producers entering 2017.

“We expect export tonnage in the quarter to be about 8 million tons. For the full-year 2017, we expect export coal to be in the mid-to-high 20 million ton range.”

CSX hauled 25.7 million tons of export coal in 2016. About 17.6 million tons of that was met coal. Thermal coal accounted for the other 8.1 million tons.

“On the export side, we have seen an incredible uptick here over the last six months,” Eliasson said. “The forward curve is pretty clear; that indicates that things will come back down as we move through the second quarter and into the second half, and the spot market has already reflected that versus that very high benchmark that we saw.

“But there is no doubt that the coal business is in a much different place as we enter into 2017 than it has been the previous couple of years.”

According to documents released along with the earnings report, about 51 percent of CSX’s coal tonnage is domestic utility coal. Coke, iron ore and similar coal-related freight are 18 percent. Export metallurgical coal is 18 percent, and export thermal coal is 13 percent.

In the fourth quarter, CSX saw a 4 percent increase in domestic utility coal to 14 million tons, a 34 percent increase in export met coal to 4.7 million tons and a 36 percent increase in export thermal coal to 3.4 million tons. All together, coal tonnage was up 9 percent in the quarter, although it was down 21 percent for the year, even with the extra week in the fourth quarter.

In the domestic utility coal market, “Although higher natural gas prices improved coal-fired utility competitiveness, volume declined modestly as utilities continued to burn through inflated stockpiles during the fall shoulder period,” CSX reported.

In export coal, “both metallurgical and thermal volume increased as U.S. producers capitalized on Chinese production curtailments earlier in the year.”

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