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In the near term, the nation’s second-largest coal producer expects rail service to deteriorate and stockpiles to shrink while BNSF Railway Co. and Union Pacific Railroad repair and upgrade a joint Powder River Basin line damaged by heavy rains in April and May.

But in the long term, officials at Arch Coal Inc. are banking on improved rail service — beginning next year — after the line is rehabilitated.

“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 Arch Coal President and Chief Executive Officer Steven Leer in a prepared statement.

In the meantime, power plant coal stockpiles will continue to decline, especially if current above-average temperatures persist, Leer said. At June’s end, Arch Coal’s stockpiles were about 15 percent below the company’s 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.

Poor rail performance and operational difficulties at the company’s West Virginia mine in April and May will adversely affect Arch Coal’s second-quarter financial results, as well as full-year results, Leer said. During the second quarter, railroads reduced Arch Coal’s coal moves by more than 4 million tons, lowering the company’s net income by about 35 cents per share.

“Despite ongoing rail challenges, we are more confident than ever about the long-term prospects for our company,” Leer said. “A growing economy, high prices for competing fuels and hotter-than-normal summer temperatures should translate into very robust demand in the future.”