Weak seaborne coal pricing and a competitive Australian dollar largely drove a 16% decline in Norfolk Southern's third-quarter coal exports, the railroad reported Thursday.
"We continue to see global oversupply and weak commodity pricing and the weak Australian dollar is making Australian coal more competitive in the global marketplace," said Donald Seale, the company's executive vice president and chief marketing officer. "There are challenging and uncertain conditions in the coal sector."
The Norfolk, Virginia-based railroad saw its Q3 coal revenues decline to $626 million from $641 million in 2013, driven by a 2% drop in volumes.
Average revenue per unit stayed even at $1,885 as a 9% increase in longer haul traffic to the company's southern utilities was offset by the decline in higher yielding export traffic.
The company's exports, which comprise 15% of its overall coal volume, declined to roughly 50,100 carloads during the quarter. Seale pointed to the low price of both the Australian benchmark metallurgical coal and the low price of thermal coal delivered to Northwest Europe as proof of the difficult environment.
Platts on Tuesday assessed premium low vol hard coking coal FOB Australia at $108.75/mt, while the CIF ARA marker was assessed at $73.60/mt.
"If those two indices continue to be that low, US producers will be very pressured to have any growth in exports in 2015," Seale said. "The wild card continues to be utility coal."
Shipments of domestic utility coal, which comprised 64% of the company's total third quarter volume, fell 3% due largely to mild summer temperatures and low natural gas prices. Winter weather will have a large impact on fourth quarter results as utility customers are at 19% below their normal December stockpile averages, Seale said.
The company also saw a 14% loss in volume at its northern utilities, which was attributed to the loss of a competitive contract, said Wick Moorman, chairman and CEO.
The company's other two coal markets, domestic metallurgical coal and industrial coal, were up 8% and 32%, to 48,800 carloads and 20,200 carloads, respectively. Gains in coke shipments to the steel industry offset weaknesses in global met coal volumes, Moorman said.
Moorman called 2014 "something of an anomaly" with an "extra tough winter" and increased volume through the Chicago gateway causing congestion. He downplayed reports of consolidation efforts by Canadian Pacific by saying any such efforts could lead to additional service problems, would not necessarily ease congestion and would face steep regulatory hurdles.
"A major railroad merger is not a good idea," he said. "I just don't think it would make sense at this time."
The railroad's business outlook for 2015 could depend on weather, but weak overseas markets do not portend well for coal, Moorman said.
"We continue to have opportunities to generate solid business growth in most business units," he said. "The exception is coal."
Norfolk Southern reported overall Q3 revenues of $3 billion, up 9% from the year-ago quarter. Total volume was up 8% to 1.98 million carloads, while average revenue per carload for all traffic was up 1% to $1,534.
