Seaport Global Securities LLC wrote in a new research note it is "looking more and more likely" the Powder River Basin will see volume growth numbers turn negative at some point in 2017.
The note states about 330 million tons of coal were shipped from the basin in 2016. Based on data from the U.S. Energy Information Administration, annualized production for 2017 would result in about the same. Analysts Mark Levin and Nathan Martin questioned the projections of Union Pacific Corp., which the analysts said have implied 8% growth for the full year.
"The Omaha-based railroad has as good as insight as anyone, but it will readily admit its crystal ball is far from perfect," the note states. "While its forecast is predicated on normal weather and natural gas prices at or above $3, both of those variables are big unknowns."
Based on the sum of production guidance from publicly traded producers, the note states, production will likely be up only 3% in 2017 compared to a year ago. For the the railroad company's forecast to play out, the note states, non-public producers would have to produce a lot of coal in the back half of the year or public producers would have to significantly raise their guidance in an unfavorable pricing environment.
The weekly note on coal reiterated past research concluding that Powder River Basin prices have been "pummeled" in the recent month. The note ascribes weak prices to a "very mild winter" and above average utility inventories.
The note also said that at about 11 million tons, Arch Coal Inc. has the most unpriced tonnage in 2017. Levin and Martin estimated that Peabody Energy Corp. and Cloud Peak Energy Inc. are almost entirely sold for 2017.