In 2013 and 2014, moreover, harsh winters slowed a railroad system already contending with cross-commodity demand increases, including record grain harvests, the firm reported in “Can railroads meet summer U.S. coal demand?” Coal prices, noted Wood Mackenzie, are ultimately dependent on mine and rail capacity.
“Even if the railroad problem is fixed, mine capacity may not be able to grow fast enough to meet demand,” said Matt Preston, the firm’s principal analyst for North American thermal coal markets.
With stockpiles depleted following wintertime railroad performance glitches and networks’ inability to increase deliveries beyond 2013 levels, the survey added, coal-producing units relying on western coal couldn’t enhance output despite increased demand.
Tighter gas markets, meanwhile, will inflate gas prices — further increasing demands on coal through Q3 2014, despite limited western coal supplies.
Coal demand during the summer, however, will be critical. “If rail capacity can’t keep up with production, it’s less likely that prices will increase significantly as buyers will stay on the sidelines,” said Preston. But “if railways can perform, then prices should climb dramatically as buyers seek to feed the rise in demand for coal-fired generation.”
Low stockpiles, rail delivery constraints, and lower production levels to date are having the strongest influence on demand from units relying on Powder River Basin (PRB)-based coal.