Electric power sector coal stockpile levels recover from summer lows

Total coal stockpile levels at U.S. electric power plants were 168 million tons in November 2011 — up from a near five year low in August. Temperate weather in coal consuming portions of the country this fall allowed utilities to replenish inventories. Coal Consumption decreased across every region of the country compared to November 2010 with significant declines in the Southeast, Central and Mid-Atlantic regions.

Coal stockpile levels typically decline during summer months as power plants burn through stocks to meet seasonal peak electric demand for air conditioning load. Stockpile levels have been depressed throughout 2011 compared to 2009 and 2010 levels.

Increases in the spot price of Central Appalachian coal as well as some supply disruptions in the late spring of 2011 contributed to declining stock levels into the heavy consumption season of summer. According to average monthly data, the spot price of Central Appalachian coal (a key benchmark for the price of Eastern bituminous coal) was up 12% since November 2010. Flooding in April and May disrupted some coal deliveries, especially in the Southeast, and likely played a role in the declining stock levels going into the summer of 2011.

Coal plant operators seek to maintain inventory levels that balance the risk of fuel supply disruptions with the cost of the working capital tied up in stocks. While in principal operators may want to minimize stocks and inventory costs, the reliability element of the equation generally prevents operators from keeping stocks at minimum levels. However, railway disruptions in mid-to-late 2005 forced some power plant operators to draw down their stockpiles of coal to unprecedented levels by early to mid-2006. This incident, coupled with the economic downturn (and reduced coal consumption) of 2009 led to increasing stockpile levels.

Days of burn, another measure of the disposition of coal stocks, dipped under 60 days by mid-year 2011 for the first time since 2008. Though days of burn have increased from a low of 58 days in July, total days of burn remain flat heading into winter 2012. Mostly for reliability reasons, plant operators maintain stockpiles within certain ranges even though supply disruptions in excess of 60 days are relatively unlikely. Days of burn held generally rose in 2009 as a result of the reduced electricity demand associated with lower economic activity.