US-based Arch Coal on Tuesday said underperforming rail service has cut its Powder River Basin coal shipments by between 4 million 5 million st in the first half of 2014, adding that rail improvements in the region have been "a little bit slower than we would like."
"The story of the Powder River Basin this quarter was effectively the meltdown in rail service," said Chief Operating Officer Paul Lang said in a second-quarter earnings conference call.
Lang said joint line performance deteriorated in the second quarter from the first quarter, adding that the number of trains per day was down 4% from Q1. He said the the joint line saw an 80.6% service record, "which is pretty low historically. Comparing Q1 to Q2, BNSF dropped from 79 to 76, but also troubling was UP dropped from 91 to 85 percent," Lang added.
Arch President and CEO John Eaves said there have "been some things happening to [the rails] that have really impacted their performance, one would be hauling oil out of the Bakken, grain season, weather congestion in the Midwest and then they had a lot of their track fall out and they had to reconstruct a lot of their track."
Still, Eaves said the rail issues, while frustrating, are not new to the coal industry and large capital investments by the rail carriers should improve performance later in the year.
"We're going to be late '14 going into '15 before we see the results that we like. It is something that we are frustrated with. We continue to work with them."
Eaves this year's problems are about "the third time in the last 10 years that we had a meltdown in the railroads. They do tend to get fixed, it's just a little bit slower than we would like."
RAIL PERFORMANCE HURTS PRICING
The PRB 8,800-Btu/lb front month over-the-counter physical price closed at $11.45/st on Monday, the lowest level for the front-month contract since January 15, when the price closed at $11.35/st, according to Platts data.
"Short term, I think it is having an impact, I think the buyers are reluctant to go out and commit any additional volume at least the balance of this year until they can get what they contracted for," Eaves said.
But he also said the company is seeing interest for deliveries for longer dated terms, specifically in 2015-2017, with "pretty decent pricing."
Arch's core Powder River Basin operations sold 26.9 million st in Q2 2014 at an average price of $12.79/st, compared with 25.7 million st in Q1 2014 at an average sales price of $12.73/st.
