Coal news and updates

Coal is making a comeback, but traffic jams along the nation’s rail network are keeping a lid on prices.

 

Rail backlogs that have delayed grain and sugar shipments have affected coal, too. The delays come at a time when supplies are running low and prices should be climbing. The frigid winter sent demand for heat and electricity soaring, and utilities ran down coal stockpiles to nearly 60 million short tons below their five-year average, according to Platts, a pricing service that’s part of McGraw Hill Financial Inc.

 

A similar dynamic sent natural gas prices soaring this winter. But coal’s rally petered out during one of the coldest stretches, and have leveled off since then. That’s in large part due to a bottleneck at the Powder River Basin in Wyoming, the country’s most productive coal mining region.

 

The basin’s coal topped out at $12.95 per ton on Jan. 24 and closed Tuesday at $12.45. A shortage of rail cars to carry coal to buyers was behind the halt in prices, analysts and coal companies say. Utilities couldn’t get shipments they had already paid for because BNSF Railway Company, the main carrier out of the basin, got slammed by a surge in oil shipments and bitter cold that forced it to shorten its trains.

 

“Why buy more coal when you know you can’t get it?” said Ted Pile, spokesman at Alpha Natural Resources Inc., a Virginia company with two mines in the basin.

 

The rail bottleneck adds to other problems besetting coal prodcuers. They face increasing competition from cheap natural gas and stricter environmental regulations. This winter’s exceptional demand for all forms of energy had given the market a much needed boost.

 

“The whole coal market has been relatively stagnant for a couple years,” said Andrew Moore, a Platts editor following the industry. “The rail service issues are really, really bad.”

 

Transportation issues are one reason making short-term bets on coal is a bad idea, said Michael J. Cuggino, president and portfolio manager at Permanent Portfolio Family of Funds Inc. Mr. Cuggino said he owns shares in Peabody Energy Corp., one of the big Powder River Basin miners. He described his position as a long-term bet that the coal industry will get past the rail bottleneck and other hurdles.

 

“We don’t think coal is going to go away,” he added. “Right now you’re dealing with low prices and tremendous overhead, but if those conditions change you have a big capital opportunity.”

 

 

Source: http://stream.wsj.com/