Weekly coal production
The EIA (U.S. Energy Information Administration) estimated that US coal production would rise to 16.5 million short tons during the week ended October 22, 2016. This production estimate is nearly 2.7% higher than last week’s production estimate of 16.0 million short tons and 6.1% lower than the comparable week in 2015.
Of the total estimated coal shipments, 3.9 million short tons were estimated to come from the Appalachian region, 3.4 million short tons from the Interior region, and the remaining 9.2 million short tons from the Western region. Among the major coal-producing regions, the Interior region is estimated to witness higher coal production on a week-over-week basis. The production was estimated to rise by nearly 4% from 3.2 million short tons a week ago.
Why coal shipment is important
Every week, the EIA publishes shipment data based on coal railcar loadings. Coal is an important commodity for railroad companies such as Union Pacific (UNP) and CSX (CSX). However, coal’s importance in freight has been falling due to the emergence of shale oil. It’s also falling due to competition from other commodities and the reduced propensity of utilities (XLU) to stock coal.
More importantly, coal producers mine coal based on demand, so coal shipments mirror production over the long term. In this sense, 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) like Peabody Energy (BTUUQ), Alliance Resource Partners (ARLP), Arch Coal (ARCH), and Cloud Peak Energy (CLD). However, there could be some deviations in the short term.
Key takeaways from the state of coal shipments
It’s important to remember that shipments are a function of demand and other factors such as rail availability and competition from other commodities.
In this sense, weekly coal shipment data can be misleading. Apart from genuine demand-side issues, factors such as rail cars not being available, bad weather, and supply issues can distort the data.
Continue to the next part of this series to find out about coal prices during the last five weeks.