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Railroads: Coal shipments probably won't improve in 2013

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Last year was not a good one for the coal-hauling business on the two major railroads serving West Virginia, and 2013 looks to be more of the same, company officials say.

On top of that, coal from the Illinois and Power River basins is a growing part of the markets for the two railroads and Central Appalachian coal is declining.

Clarence Gooden, CSX executive vice president of sales and marketing, told investment analysts on a conference call Jan. 23 that domestic coal shipments on the railroad could decrease by 5 percent to 10 percent this year compared to 2012, following a year in which shipments were already down 16 percent from 2011.

The afternoon before, Donald W. Seale, executive vice president and chief marketing officer of Norfolk Southern, told analysts that utility coal is 70 percent of that railroad's coal volume, and shipments were off about 20 million tons in 2012 from 2011.  About half the dropoff was due to utilities' burning low-cost natural gas instead of coal, while the rest was because of decreased industrial and residential demand for electricity, he said.

Seale also said Powder River Basin coal is about 17 percent of NS's current tonnage, with Central Appalachian coal at 31 percent, making it the highest component of the railroad's coal traffic. Northern Appalachia is about 27 percent. But Illinois Basin coal is growing very quickly both for export and for going to power plants with scrubbers, he said.

NS and CSX are the two railroads that dominate traffic east of the Mississippi River. Seale said all Powder River Basin coal moving on NS is going to domestic utilities, but Norfolk Southern is analyzing possibilities to become part of the supply chain to move it to ocean ports for export.

CSX officials said Illinois Basin coal is replacing Central Appalachian coal in some markets.

Gooden said utilities' stockpiles in the South are growing, in part because of a 1.2 percent decrease in demand for electricity and in part because low gas prices have caused utilities to shift generation from coal to gas when they can. Stockpiles in the North are slightly higher than normal, while they are normal in the mid-Atlantic region, he said.

Gooden would not predict when the coal market may begin to recover, but he said it won't happen as long as gas prices remain in their current range.

Michael Ward, chairman, president and CEO of CSX, said many of the smaller coal-fired power plants that are scheduled to shut down in 2015 are going off line sooner because of low gas prices.

CSX has seen an increase in the amount of sand it hauls for hydraulic fracturing operations, although that declined some in the second half, Gooden said. Although the number of drilling rigs involved in Marcellus and Utica shale activity is down, drilling has shifted into areas served more heavily by CSX, so numbers have held up recently, he said.

On the export side of the coal business, numbers are down, and Norfolk Southern CEO Wick Moorman said the market is difficult if not impossible to predict for now. Seale said about half of the export coal hauled by NS goes to Western Europe, and the market there is weak because of weakness in the overall economy there.

As for the U.S. economy, Gooden said he sees "slow, steady, continuous growth" this year. Unless the auto and housing industries recover more than they have, growth is not likely to exceed the expected 2 percent rate, Gooden said.