Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Michael Dudas from Jefferies. Please proceed.
Michael Dudas - Jefferies
Ben, couple of questions. First, you touched on taking some of your high-vol coal into the Northern App market. What kind of premium are you getting to a normal typical Northern App, given the better yield? And how much of a discount from what you would have sold that product towards? And is that more of a kind of a near-term three, six-month or is there a term involved in that type of business?
Ben Hatfield
I’ll let Mike Hardesty speak to that specific.
Mike Hardesty
On the yield question, we’re probably seeing the benefit of about six to 7% on the plant yield for making a steam product versus a met product. One of the things we have, we have some flexibility on some of our Central App contracts to move them between Northern App and Central App. They’re lower quality, which gives us even more of a yield benefit. And where we idled mines in Central App, we transferred some volume up there to offset the missed met shipments.
Michael Dudas - Jefferies
Understood. Ben, first quarter Central App costs were up, I guess, $10 a ton. I know price is up 16. How much of that is royalty and maybe just some of the year-over-year issues?
Ben Hatfield
Year-over-year, obviously, I think the cost difference is about $6.50 a ton. But, as you well know, about 12 or 13% of every dollar in revenue goes directly to the cost line, so with $11 improvement in revenue, nearly a fifth or more of that cost increase is directly sales related. Other areas of increases, obviously, labor year-over-year is up, even though looking at 2009 and going forward, we expect labor rates to be very much flat and possibly even declining in some respects.
The year-over-year labor cost is up significantly because of the sharp wage and salary escalation during 2008. So that is one factor, and we’re, of course, in some respects going forward improving that with productivity step-ups at various operations.
The bigger factor, if you try to identify one single issue, it’s the labor costs year-over-year, that’s probably the biggest piece of that. And we have offsets also from commodity cost, somewhat improved on our diesel position year-over-year and it’s going to improve going forward in 2009.
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