Weekly coal production
According to the EIA (US Energy Information Administration) estimates, US coal production was continued to rebound sharply to 16.8 million short tons during the week ended January 21, 2017. This production estimate is nearly 6.6% higher than last week’s production estimate of 15.7 million short tons and 20.6% higher than the comparable week in 2016.
Of the total estimated coal shipments, ~4.2 million short tons were estimated to come from the Appalachian region, as compared to ~3.6 million short tons from the Interior region. The remaining ~8.9 million short tons were estimated to come from the Western region. Among the major coal producing regions, the PRB (Powder River Basin) is estimated to witness a significant 8% rise in coal production on a week-over-week basis.
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 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 for more on coal prices for the past five weeks.