Strong Export Coal Means Stronger Prices

Export coal volumes on eastern railroads could be up 20% to 30% in 2008. The higher margins on this business could benefit further from price increases. “The contribution to margins is far greater from a price increase than volume,” says Morgan Stanley. “With metallurgical coal running at [three times] last year's prices,we expect to see a material increase in rail pricing for export coal in [thesecond quarter of 2008].”

Historically,export coal makes up only 5% to 10% of coal volumes, says the analyst firm, but the benefits to the railroads of strong demand and pricing on export coal can help balance other commodity sectors.