Patriot Coal Corporation (fka PCXCQ)

[10452km2]

Raymond James analyst says coal prices may rebound


NEW YORK - A Raymond James analyst said Monday that while coal companies face "significant challenges," many of the companies' shares are nearing attractive prices.

THE BACKGROUND: Coal producers have struggled this year in the face of weak demand.

Mild winter and spring weather reduced utility company needs for coal to generate electricity. In addition, utilities and some manufacturers have switched from coal to cheaper natural gas for fuel.

The price of natural gas has fallen to record lows this year because booming production has produced a glut, further weakening the attractiveness of coal.

As a result, a number of coal producers have cut back production and shuttered mines to reduce costs.

THE OPINION: Analyst James Rollyson said that barring a major global recession, shares of coal companies may soon be worth buying. He pointed to the continued long-term global growth in coal demand and falling U.S. coal production levels.

In addition, he noted that U.S. thermal coal spot prices are currently below cash cost levels and aren't sustainable, while the global metallurgical coal market appears to be hitting bottom.

Rollyson also predicted that natural gas prices will bottom out this year and begin to recover, possibly reversing the previous shift toward natural gas.

But the analyst acknowledged that coal prices and demand remain heavily affected by the European economic situation, demand from emerging markets like China, India and Brazil and U.S. natural gas prices.

SHARE MOVEMENT: Shares of Alpha Natural Resources fell 38 cents, or 4.2 percent, to $8.45 in late afternoon trading, while Peabody Energy Corp. lost 52 cents, or 2.2 percent, to $23.31. But Arch Coal Inc. shares rose 17 cents, or 2.8 percent, to $6.18 per share.



http://www.cnbc.com/id/47864331