Why the coal stocks are down at the utilities

By

Updated

Coal stocks

Coal stocks indicate coal demand in the near future. Coal-fired power plants burn coal almost continuously. They only take breaks during plant maintenance. The process of extracting and transporting coal takes time. As a result, utilities have to stock up on coal in advance to avoid disruptions.

Utilities order fresh shipments of coal once the current stock reaches a certain minimum level. The U.S. Energy Information Administration (or EIA) publishes coal stocks’ data on a monthly basis. Analyzing the data provides key insights into future coal demand.

part 8 stocks

 

Current scenario

Coal stocks across the zones have fallen significantly. The exception is the northeast zone. It saw an increase in days of burn. Utilities in the U.S.—especially in the Midwest, west, and south—are citing poor rail connectivity as the reason for fallen inventories.

Shipments out of the Powder River Basin have been hit by rail operators’ underperformance. Union Pacific (UNP) and BNSF (BRK-B) operate in the region.

A detailed account of the rail connectivity issue can be found here. Cloud Peak Energy (CLD) and Peabody Energy (BTU) are two major coal producers (KOL) that operate in the region.

What’s next?

Article continues below advertisement

Winter is approaching. Utilities may focus on refilling the coal inventories faster to have enough supply. As a result, demand for coal from domestic utilities may increase. However, the rail performance isn’t expected to improve soon. As a result, we may continue to see below average inventories at power plants. Some southern utilities might import coal to remain stocked. They will do this if the shipments get delayed.

Imports, particularly from Columbia, are another driver for domestic coal demand in the U.S. We’ll discuss this in the next part of the series.

Advertisement

More From Market Realist