Cold weather and higher gas prices cause upward pressure on railroad capacity and coal production
HOUSTON/EDINBURGH 21st May 2014 – With demand for US coal higher than in recent years due to record setting cold weather and high natural gas prices, railroads are struggling to ship required amounts of bulk fuel says Wood Mackenzie in a new report titled “Can railroads meet summer US coal demand?”.
The harsh, snowy winter slowed down performance at railroad systems already contending with a record grain harvest and higher demand across various commodities in 2013 into 2014. Ultimately, the impact on coal prices will depend on mine and rail capacity.
“Even if the railroad capacity problem is fixed, mine capacity may not be able to grow fast enough to meet demand,” notes Matt Preston, Principal Analyst, North America Thermal Coal Markets for Wood Mackenzie.
With stockpiles significantly depleted during winter as a result of railroad performance issues and the railway networks likely inability to increase the rate of deliveries much beyond 2013 levels, there is a high probability coal producing units relying on western coal will not be able to increase their output despite higher demand.