Railroaders place to shoot the shit.

Coal traded at $63.30 on the New York Mercantile Exchange on July 13. Consumption by power producers will rise 4.6 percent in 2010 to 979.4 million tons, according to the Energy Department.

Youre seeing record levels of demand for a lot of regions, especially in the Northeast, said Jeremy Sussman, a senior coal analyst at Brean Murray Carret & Co. in New York. Its setting up a situation for prices to rise.

Prices have gained 29 percent this year on hotter-than normal weather from California to New York. Demand from utilities increased amid stiffer federal scrutiny of the mining industry after the Massey Energy Co. disaster on April 5 curbed operations in Appalachia, home to 33 percent of U.S. coal production. Output has dropped 6.9 percent in the past 12 months, Energy Department data show.

The hottest summer in 15 years is hitting Washington and New York, where temperatures topped 103 degrees Fahrenheit (39 Celsius) in Central Park, according to AccuWeather.com. Eastern states may experience temperatures as high as 110 degrees Fahrenheit in August, said Jim Rouiller, a senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania.

Electricity demand may climb 3.5 percent in the second half of the year from a year earlier, the Energy Department said in its Short-Term Energy Outlook on July 7.

This summer has started out much warmer than last summer, resulting in more demand for air conditioning, the department said in the report.

The heat has already trimmed supplies, according to Genscape Inc., a Louisville, Kentucky-based data provider. Utilities held about 158.4 million tons in the week ended July 12, down 2.5 percent from the previous period and 12 percent lower than a year earlier, Genscape said.

The number of cooling degree-days, a measure of the cost to run air conditioners, has been above normal in New York and Philadelphia since June 1, according to the National Weather Service. Total U.S. cooling degree-days in June were 28 percent higher than a year earlier, the Energy Department said in the July 7 report.

Weve had a very wild May and June, where temperatures were near a record or the warmest on record, Rouiller said in a telephone interview. I dont see anything that will break this trend of excessive heat this summer.

The U.S. Mine Safety and Health Administration started what it termed an inspection blitz after 29 people died at Richmond, Virginia-based Masseys Upper Big Branch mine in West Virginia on April 5, the worst U.S. coal mining disaster in 40 years. The agency said in the past two months it started inspections at 57 mines with histories of violations and six were ordered to close in Kentucky.

The increased scrutiny may curtail production for the next several years, Peter Socha, chief executive officer of Richmond-based James River Coal Co., told a conference in New York on June 24.

Gains in coal prices may be capped should power producers switch to natural gas, which has fallen 22 percent this year on the Nymex, said James Rollyson, an analyst at Raymond James Financial Inc. in Houston. A slowdown in the economy may also damp prices, he said.

About 10 percent of power plants, mostly in the Southeast, can alternate between the two fuels, according to Meredith Bandy, an analyst at BMO Capital Markets Inc. in Denver.

Plants in the Southeast that use gas to generate electricity make about $14.81 per megawatt hour, according to data compiled by Bloomberg as of July 13. Units powered by coal make $31.68, the data show.

Coal prices might rise as high as $74 a ton by September, according to a technical analysis by Jim Stellakis, founder of New York-based research company Technical Alpha.

Its very steady to the upside, Stellakis said. The price action can only be characterized as steady and rising.

(This item appeared July 15, 2010, in Business Week.)