Eastern US railroad Norfolk Southern (NS) expects coal volume to rise in the back half of 2023 as strength in export markets offsets weaker utility demand.
The railroad expects production at NS-served coal mines to rise to meet export demand, which may increase shipments. But NS forecasts that seaborne coal prices may drop
Utility coal demand will remain “largely dependent on the weather, on existing stockpiles and natural gas prices,” chief marketing officer Ed Elkins said on Wednesday during the company’s quarterly earnings call.
The lower domestic coal demand and international coal prices will drive revenue per railcar “to sequentially decline by a low double-digit percentage,” Elkins said.
In the second quarter, NS hauled 18.5mn short tons (st) (16.8mn metric tonnes), down by 1pc compared with the year-earlier period.
Export coal shipments rose by 18pc to 7.7mn in the quarter compared with the year-earlier period.
“Although export volumes increased, the mix between export steam and export metallurgical coal shifted unfavorably and comparatively lower seaborne coal prices yielded lower revenue per unit,” Elkins said.
Utility coal volume fell by 17pc to 6.8mn st because of low natural gas prices and elevated stockpiles. Domestic metallurgical coal deliveries rose by 10pc to 3.1mn st, while industrial coal shipments fell by 19pc to 882,000st.
NS’ total profits fell by more than half, dropping to $356mn from $819mn in the year-earlier period. Profits were affected by a $416mn charge related to the clean up of the 3 February derailment of a train hauling hazardous materials in East Palestine, Ohio.
Overall freight revenue fell to $2.9bn, down by 8.3pc from $3.3bn in second quarter 2022, reflecting lower revenue from its coal, intermodal and chemicals segments.
In the back half of 2023, NS plans to focus on pursing new opportunities and markets with the potential for growth as it waits for market conditions to improve.
NS expects commodity volume in its merchandise sector to vary with strong levels of non-residential construction as reshoring and infrastructure projects increase, Elkins said. That growth will drive strength in metals and construction volume.
Overall merchandise volume, which including the metals, automotive, agricultural and chemicals markets, fell by 1pc compared with second quarter 2022. Merchandise revenue fell by 1pc to $566.7mn.
NS expects pent-up demand for US light vehicles will continue to support metals and automotive volumes. Automotive shipments in the second quarter rose by 8pc over the prior year, driven by robust finished vehicle production, while revenue rose by 26pc to $284mn.
But NS forecast continued weakness in its chemicals business because of reduced demand for several products. Chemical producers are also struggling to meet demand from the metals, aggregates and finished vehicles industries.
NS expect international intermodal demand will continue to rise on strength in imports. But domestic intermodal demand will depend on a mix of consumer demand, retail inventory levels, and competition from the truck market.
Total intermodal volume fell in the second quarter to 925,400 trailers and containers, down by 9pc from a year earlier. International shipments rose by 1pc while domestic intermodal traffic dropped by 14pc.
View article here.
- On August 3, 2023