CSX says summer heat an early Q3 tailwind for coal segment

The dog days of summer have been a "helpful tailwind" for CSX's coal segment early in the third quarter as some utility coal customers seek more train sets, CSX said in a July 21 earnings call.

"Coal is a dynamic market right now," said CSX Executive Vice President Kevin Boone. "Look, two weeks, three weeks ago, before this hot summer started, [there was] probably a little bit lower outlook for domestic coal business. But just recently, we're getting a lot more interest and a lot more inbounds on what we can do, given some of the heat waves we're having."

Boone said inventory destocking is expected to slow in many CSX-served markets, but the specific timing around this shift was uncertain.

"Weather is a surprise from a heat perspective to the upside here over the last few weeks, and we're seeing that with a lot of our customers running full out here and deploying some of the inventory levels," Boone said.

While the summer heat has been a "helpful tailwind" so far in Q3 with customers seeking more sets, overall utility coal stockpiles are projected to be stable in the second half of 2023, according to the company's July 20 investor presentation.

Thermal coal prices were weaker in Q2 amid low-cost natural gas and softer global coal demand.

Central Appalachia 12,500 Btu/lb CSX rail coal averaged $75.46/st in Q2, down 49.9% from $150.70/st in the year-ago quarter, according to the Platts assessments by S&P Global Commodity Insights.

Due to lower coal prices, CSX coal revenue fell 2% on the year to $637 million in Q2 even as coal volumes rose 4% to 185,000 units. CSX's revenue per coal unit was $3,443 in Q2 2023, down 6% from the year-ago quarter. For the first six months of 2023, CSX coal volumes rose 11% on the year to 370,000 units as revenue per unit fell 3% to $3,432.

The higher coal volume was driven by more export shipments as domestic utilities sought to move tons into higher-priced international markets, CSX said. CSX mainly exports met coal priced around $225/mt, according to Boone.

The railroad said it anticipates higher full-year coal shipments due to strong export demand and good cycle times, but that domestic shipments are likely to soften amid low natural gas prices.

"We'll see how the winter plays out," Boone said. "I think it's really early in July to call 2024. That seems a bit premature to me."

Looking to the future, CSX said its developing new transportation lanes and boosting its activity at inland ports. Boone said Q2 performance was good at its coastal port Curtis Bay in Baltimore. Port logistics overall have improved, the railroad said.

"If you think about going forward, the ports aren't congested as much as they were, and we don't have a lot of the network all gummed up in the intermodal facilities etc.," said CSX CEO Joseph Hinrichs. "So we should be able to run more fluidly when the market comes back on the intermodal side especially."