Arch, which mines two-thirds of its coal in the Powder River Basin (PRB), had its shipments reduced by over 4 million tons during the second quarter after the PRB rail service was severely affected by weather-related events in April and May. Net income suffered by US35c a share.
The joint line is operated by the Union Pacific and the BNSF and has been undergoing major maintenance and repair work that is expected to reduce shipping capacity through to year’s end.
"While we are extremely disappointed in the recent performance of the railroads, we've been assured that the work being done currently will translate into a more efficient and reliable rail system - one that can support the expected rapid growth in demand for Powder River Basin coal," said Steven F Leer, Arch's president and chief executive officer.
Arch expects a rapid draw-down of power plant stockpiles and estimates utility stockpiles are already approximately 15% below the five-year average.
"This stockpile liquidation is likely to result in unprecedented demand for coal as we enter 2006, as utilities commence what is likely to be a multi-year effort to rebuild stockpiles to targeted levels," Leer said. "During that time, competition for available tons is likely to be intense."
Leer said prices for Powder River Basin coal had already strengthened significantly in recent quarters. Since the beginning of 2005, Arch has signed commitments to ship approximately 15Mt of PRB coal per year in 2006, 2007 and 2008, at average netbacks to the mine that are 40-60% higher than the company's average realisation for PRB coal during the first quarter of 2005.
Operational difficulties at the company's Mingo Logan longwall mine in West Virginia during April and May have also had a negative impact on second quarter results.
Virginia-based Massey Energy is also expecting rail trouble to have an impact on its full year profits, though it should be less pronounced as Massey has no operations in the west, mostly mining its coal in the central Appalachian area in the east.
Meanwhile, Xcel Energy utilities, Public Service Company of Colorado and Southwestern Public Service, are running low on coal thanks to the rail disruptions.
