By Andrew Moore

September 25, 2017 - Utility coal stockpiles are trending lower, but fuel buyers are not in rush to rebuild, as changing market dynamics continue to reshape what normal inventories are, said a noted coal analyst Monday.

Mark Levin, with Seaport Global Securities, said in a research note that in discussions with industry sources, "we continue to get the sense that major US utilities are not particularly worried about getting the coal they need when they need it."

Levin said that while natural gas prices have generally been supportive of increased coal burn, another mild winter and "uninspiring summer weather" have left stockpiles at "comfortable" levels.

"Many of these utilities are relying less and less on coal, and more and more on natural gas and renewables," Levin said. "Their needs just aren't the same as they once were and likely won't be anytime soon. Hence, the definition of 'normal' inventories continues to evolve."

The Energy Information Administration estimates utility coal stockpiles stood at 160.5 million st at the end of June, which is the most recent data available. July data is set to be released by the agency on Tuesday.

The June total was down 12.4% from the year-ago period, down 5.8% from the five-year average for the month and down 17.2% from the five-year peak of 194 million st at the end of April 2016.

Platts Analytics' Bentek Energy estimates that stockpiles have continued to draw down this summer, totaling 128 million st as of last week.

A portion of the decline is likely due to ongoing retirements, but with natural gas prices hovering around $3/MMBtu, buyers might also be waiting for more direction from weather or gas markets before making procurement decisions.

Levin said a senior Eastern rail executive he recently spoke with told Levin that he is urging utilities to keep higher inventories than usual, as it may not be easy to procure more coal as the railroad's trim assets in coal country on account of declining demand.

"The key is weather," Levin said. "If the US ever has a brutally cold winter again or if service is interrupted due to Mother Nature, the railroad wants them to be prepared."