Weekly coal production
According to EIA (U.S. Energy Information Administration) estimates, US coal production was expected to fall to 15.2 million short tons during the week ended December 24, 2016. That production estimate is nearly 3.1% lower than the previous week’s production estimate of 15.8 million short tons and 27.7% higher than the comparable week in 2015.
Of the total estimated coal shipments, 3.7 million short tons were estimated to come from the Appalachian region, 3.1 million short tons from the Interior region, and the remaining 8.4 million short tons from the Western region. Among the major coal-producing regions, the Western region is estimated to witness a major fall in coal production on a week-over-week basis. Production was estimated to fall marginally in the Appalachian and Interior regions.
Why is this coal shipment indicator 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 been 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 that sense, a sustained rise or fall in coal shipments over a few weeks compared to the previous year is a significant indicator. It affects coal producers (KOL) such as 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. Weekly coal shipment data can thus be misleading. Apart from genuine demand-side issues, factors such as railcars not being available, bad weather, and supply issues can distort the data.
In the next part of this series, we’ll look at coal prices for the last five weeks.