Question-and-Answer Session
[Operator Instructions]. And first we have the line of Michael Dudas with Jeffries & Company. Please go ahead.
Michael Dudas - Jeffries & Company
Good morning, Greg, Rick and welcome Mike.
Gregory H. Boyce - Chairman and Chief Executive Officer
Good morning.
Michael Dudas - Jeffries & Company
My first question it is regarding PRB. Rick you outlined some of the demand drivers that you've seen through the first half of the year. Talk a little bit about maybe your surprise that maybe the PRB is not meeting some of the production growth outlook. And are we going to continue to see pushback because of either rail or utility decisions on that? And if that's the case, do you think that the steep contango will continue in the future as we start to see spot prices maybe a bit higher as it had been towards draw down of the rivers?
Gregory H. Boyce - Chairman and Chief Executive Officer
That's a great question Mike. I think, I think to start with, I mean to everybody else on the call, I mean the PRB forward market is in steep contango and which really gives you the indication of what strength of the market is in the out years. As compared to looking at the spot market if you will for 2008 which is doing not really well to what's happening in the market. The contango shows there is significant demand in the out years. And as we talk to our customers what we are finding out is, there is always a concern that there wasn't going to be enough switching that already occurred. We are continuing to see, customers that have switched were in a higher blend of PRB coal, if they can. Or we are seeing new customers come to the table, and test running, burning to shorten their blend.
Usually once they start blending PRB coal, at 10% or 15% level, they definitely increase it because they find it, that it is easy to burn and that it's something that is economical. And right now as you said, its... when you look at the cost structure and the net back scenario, PRB coal it is still significantly cheaper than the alternative which is Appalachian or Northern App coal which may not have been available to the customers.
So we think it's..., I mean I think the railroads are going to perform stronger. We've had obviously a large flood in the Midwest that really stalled some of the production issues out of the Powder River Basin. But I think, all in all, as we look at our platform specifically, with the work that we have done, we feel very confident that we are going to be able to meet expanded production profile but we've already committed to for 2008 for our customers. So we are very, very bullish on PRB, have been for sometime and we are very committed even last conference call when were telling folks that the prices were much higher than what you they were seeing in the traded markets and then it was just a matter of time before the longer-term markets caught up.
- To read the full transcript on Seeking Alpha, click here »
