What To Expect From CSX’s Coal Freight Business In 2019?

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CSX Corporation’s (NYSE: CSX) coal freight business accounts for roughly 20% of the company’s value, according to Trefis  estimates. The segment generated revenues of $2.25 billion in 2018, accounting for 18% of the company’s total revenues, and a growth of 6.6% over the prior year. This can be attributed to a strong uptick in coal exports in 2018. In fact, the coal export volume for CSX was up 42% last year. However, the trends have changed in the recent past. The trade tensions between the U.S. and China could hamper the growth in coal exports. Note that China is an important market for the U.S. coal. The exports to Asia doubled from 15.7 million tons in 2016 to 32.8 million tons in 2017. Looking at China, exports were 3.2 million tons in 2017, as compared to zero in 2015 and 2016.

Looking forward, the overall U.S. coal exports are expected to decline 15% to 98 mst (million short tons) in 2019. Coal production is expected to decline 7% to 700 mst, while coal consumption is expected to decline 12% (y-o-y) to 604 mst in 2019, according to EIA. Utility coal demand is also dependent on the trends in natural gas prices, which have declined close to 20% year-to-date. These factors will likely have an impact on railroad coal shipments.

CSX Corporation could see low single-digit decline in coal volume for the full year 2019. However, this will likely be offset by growth in average revenue per carload, which has been trending higher. In fact, average revenue per coal carload has grown at a CAGR of 5.5% over the last 3 years. This can partly be attributed to a higher fuel surcharge, given the trends in fuel prices over the last 3 years. However, crude entered bear market territory yesterday with ballooning U.S. inventories. It will be interesting to see how the crude averages for 2019 turn out, as it could have an impact on the company’s fuel surcharge revenues. You can view our interactive dashboard analysis ~ What Is The Share Price Estimate For CSX Corporation Based On Expected 2019 Earnings? ~ for more details on the expected performance of the company. In addition, you can see more of our data for industrial companies here.

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