US coal traders may increase the standard size of rail-originated Central Appalachian steam coal contracts as shippers try to take advantage of low prices.
The size of over-the-counter (OTC) contracts for CSX rail-loaded coal is 11,000 short tons/train (9,979 metric tonnes/train), but the US Coal Trading Association (CTA) wants to study raising it to 12,500st/train. The group said at a business meeting in New York City this week that it plans to form a committee to study the issue.
The potential change comes after eastern railroad CSX sent a notice to customers in October asking them to meet minimum per-car loading and train-size requirements. Some coal shippers had been falling short.
Most coal trains have 110 cars, totaling about 12,500st.
CSX said OTC shipments are "often for tonnages less than the minimum requirements" in rail transport agreements. Some producers have asked CSX to cut the number of cars per train to load more coal in each car, but CSX said that causes storage, routing and switching problems. Others chose to load each car but with "significantly less tons per car" than CSX mandates, which can pose safety issues. Each car has a braking device that is often not engaged if the car is loaded below capacity.
"Neither of these attempts to meet the OTC contractual requirements is consistent with the obligations set forth in CSX rail transportation contracts," the carrier said.
Some producers have more market-based concerns with the structure of OTC CSX contracts. Excess tonnage beyond the standard 11,000st contract size is priced at current market levels, a mechanism called a quantity variance adjustment (QVA). But prompt OTC prices for CSX 12,500 Btu/lb, less than 1pc sulfur coal are in the low $50s/st, below the price in many older legacy contracts and well under average production costs in the region.
One producer said he thought US electric utilities were intentionally sending bigger trains to get lower prices on the extra coal sent to meet minimum volume thresholds.
"QVA forces shippers to sell tons at prices they do not agree to," he said.
But some utilities' rail agreements prevent them from breaking up train sets. Large electric generators including SCANA and Duke Energy, which are major buyers of Central App rail coal, are said to be unable to send smaller trains with fewer cars.
A drop in US coal exports is also causing an uptick in light-loaded trains, sources say. Traders doing international deals typically want larger trains that can carry almost 20,000st in order to load large oceangoing vessels. But participants have been redirecting shipments back to domestic markets because of the drop in seaborne coal prices.
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