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Why Have Utilities Been Stocking Up on Coal Lately?

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Coal shipments 

According to EIA (U.S. Energy Information Administration) estimates, US coal shipments increased to 17.8 million tons during the week ended July 24. This compares to 17.2 million tons for the week ended July 17. Out of the total shipments, 7.2 million tons came from the east while the remaining 10.6 million tons came from the west.

The shipments correspond to 103,588 railcar loadings, crossing the 100,000 mark for only the second time in three months. The expectation of warmer weather ahead and multi-year-low prices for the commodity led to utilities restocking coal.

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Why is this indicator important?

Every week, the EIA publishes shipments based on coal railcar loadings. Coal is an important commodity for railroad companies that ship coal, including Union Pacific (UNP) and CSX (CSX). However, coal’s importance in freight is falling due to the emergence of shale oil. It’s also falling because of competition from other commodities. We looked at crude oil and coal in the third part of this series.

More importantly, coal producers mine coal on demand. So coal shipments mirror production over the long term. A sustained rise or fall in coal shipments over a few weeks compared to the previous year is a significant indicator for coal producers (KOL) such as Peabody Energy (BTU), Alliance Resource Partners (ARLP), Arch Coal (ACI), and Cloud Peak Energy (CLD).

However, there can be some deviations in the short term. Shipments are a function of demand and other factors such as rail availability and competition from other commodities. So weekly coal shipment data can be misleading. Apart from genuine demand-side issues, factors like the unavailability of railcars, bad weather, and supply issues can distort the data.

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