EIA’s coal production estimates
Every week, the EIA (US Energy Information Administration) publishes shipments based on coal rail car loadings. Coal is an important commodity for railroad companies—like Union Pacific (UNP) and CSX Corp. (CSX). However, coal’s importance is decreasing due to the emergence of shale oil and competition from other commodities.
According to the Association of American Railroads, coal accounted for ~40% of tonnage and 20% of revenues for US freight railroad companies. As a result, the per ton revenue that railroad companies get from coal is much less than what they get from other commodities.
During the week ending November 28, estimated US coal production was ~19 million tons—up from 18.6 million tons in the previous week. Production east of the Mississippi was 7.4 million tons—down from 7.9 million tons in the previous week. However, the increased production in the west more than offset the drop in the east. Production in the west was 11.6 million tons—up from 10.7 million tons.
What does this mean for coal producers?
Coal production mirrors shipments. Coal is produced mainly on demand. Producers keep little inventory at their end. Rising production in the west could be a result of easing rail issues. If the rail improvement is sustained, it will help the PRB (Powder River Basin) producers (KOL)—like Cloud Peak Energy (CLD) and Peabody Energy (BTU).
The drop in natural gas prices led to lower demand for Appalachian coal. If low natural gas prices continue, Appalachian producers may not benefit from winter demand.
Production in the PRB increased during the week. However, rail issues may not be over. We’ll discuss this in more detail in the next part of this series.