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Jump in US coal railroad volumes in 2021 driving up sentiment: Benchmark

Highlights

Utility coal demand forecast to rise 12.5% in 2021

Increase in coal a 'potential surprise' for UP in 2021

Houston — US railroad coal volumes are expected to jump over the next year following better demand conditions, albeit only temporarily, the Benchmark Company said this week.

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"On the utility coal side, we think 2021 volumes will also increase on very easy comps, better natural gas prices, normal winter weather, and improved electric demand," Benchmark said in its CSX, Union Pacific and Norfolk Southern reports. "While that's likely a temporary bump, it should help sentiment. We have US utility coal demand rising 12.5% in 2021.

"These factors should help the CSX narrative," the authors added in the CSX report published Sept. 25.

In both the NS and UP reports, Benchmark noted that the volume comps will be very easy looking forward, since the railroads are competing with volumes down 25% and 20%, respectively, in the second quarter.

"A potential surprise in 2021 could be coal" for UP, Benchmark said. Current coal volumes are down 23% year on year, the report said.

Met coal, as well, is expected to add a boost to railroads given recent price increases. Benchmark noted premium low-vol met prices of $136/mt on Sept. 24, up from $106/mt six weeks ago.

Additionally, Benchmark said it believes "coal-related headwinds bottomed in 3Q (particularly on the met coal side."

With met prices expected to continue rising in 2021, railroads such as CSX, which depend on met pricing in its volumes and rates, it will be a boon after such a difficult year filled with global shutdowns from the coronavirus pandemic.

On the third quarter, Canadian National's weak energy volumes, particularly in coal, are expected to offset gains in grain, propane and domestic intermodal.

Additionally, Benchmark said in its CN report Sept 23, "the industrial/manufacturing segments are also not recovering quite like the consumer-centric industries have in the US."