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Central US flooding continues to limit coal shipments by rail, barge

March flooding and more recent storms through the south-central region of the U.S. continue to hinder Illinois Basin and Powder River Basin producers shipping coal to utilities and the export market.

Andy Blumenfeld, head of market analytics with Doyle Trading Consultants, said flooding in March severely affected coal shipments on the railroads, but there was some recovery in April. Recent flooding in Oklahoma and Arkansas shut down rail lines once again and likely delayed shipments to utilities in the Midwest into Texas.

"For the utilities themselves a mild summer probably would be a blessing if they're running low inventories right now on coal," Blumenfeld said.

Todd Crawford, senior meteorologist for IBM Business' The Weather Company, told S&P Global Market Intelligence that the Midwestern rainfall over the past year was the highest in the last 100 years, a development that could be partially driven by back-to-back El Nino events this year and in 2018 as well as warmer oceans.

"That's pretty rare," Crawford said. "That's only happened four times in the last 70 years, but when it does happen is when you tend to have these very wet periods through the U.S."

There is also a lot of water on the ground in the Midwest, which tends to evaporate into the atmosphere in the summer and then lead to more rain, Crawford said. A wet spring heading into the summer often results in wetter summer months.

"In that regard, it should have a lot of staying power through the next three, four months at least," the meteorologist said.

Blumenfeld expects shipments on barges and railroads to continue to face the effects of flooding for the next few weeks before starting to normalize this summer.

Portions of rivers flowing to the Gulf of Mexico are closed due to high and swift water, leaving barges bunched up around New Orleans or farther up the Mississippi River, Blumenfeld said. The towboats that push the barges up and down the river are also fairly limited, and the affected agriculture shipments may take priority over coal, leading to a longer recovery for coal tonnage.

"The flow of coal to the Gulf right now is much more limited than it has been," Blumenfeld said. "There are some producers that can rail coal, but there's only limited port capacity that can take rail deliveries at this time."

Some coal producers have shipped coal to Mobile Bay in Alabama to bypass the rivers and reach the export market, but that choice comes with additional costs that the miner typically bears, the analyst said. Foresight Energy LP and Murray Energy Corp. may be better positioned than some of their competitors in the Illinois Basin, given their rail contract with SunCoke Energy Inc.'s Convent Marine Terminal that allows the producers to ship coal by rail to Louisiana, Blumenfeld said. Foresight and Murray declined to comment on the conditions and impact on shipments.

When asked about the impact of the flooding, Suncoke said in a statement that the terminal facility "remains fully operational despite the high water levels on the Mississippi River. We continue to load and unload trains and vessels."

Railroad and coal industry leaders said in May that the historic flooding could affect shipments to utilities as well as coal stockpiles for months. Jennifer Hood, vice president of transportation for Contura Energy Inc., said at a May meeting that about 5.5 million tons of coal deliveries were lost due to the flooding and that she did not expect shipments to catch up until later in the summer after the Powder River Basin's wet season.

Debra Calhoun, senior vice president of the Waterways Council Inc., a waterways infrastructure advocacy group, said in an email that shipments of utility coal mined in western Kentucky and in the Illinois Basin were impacted earlier this year, but operations are up and running on the lower Ohio and Tennessee rivers.

"We have not seen much impact on export coal from the Ohio River to the Gulf, which has been the most reliable traffic lane this year," Calhoun said.

While flooding negatively affects coal producers and their customers, such weather-related events do not tend to hurt companies in the capital markets, B. Riley FBR analyst Lucas Pipes said. While it may take a few more weeks for shipments to normalize, "overall this is almost always something that's quite temporary."

The capital markets would be more concerned about seaborne thermal coal prices remaining low than flooding, Pipes said.

"From the financial markets' perspective, it's something that is viewed as transitory," Pipes said. "So the financial markets tend to be, I would say, much more relaxed about the impact of the floods. It's a short-term disruption. You wouldn't want to value business on what are seasonal effects."