NEW YORK (AP) -- The impact from Patriot Coal's bankruptcy filing may hurt its peers in the short-term, but should be beneficial in the long run, an analyst said Tuesday.
Patriot Coal Corp., which is based in St. Louis, filed for Chapter 11 bankruptcy protection on Monday as it deals with reduced demand due to a myriad of factors including mild weather, a shaky global economy and cheap alternative energy sources like natural gas.
Sterne Agee analyst Michael S. Dudas said he expects the filing to impact fellow coal companies Peabody Energy Corp. and Arch Coal Inc. because of their contracts with a Patriot subsidiary. Those contracts could be at risk as Patriot goes through the court process.
Whether the company emerges from bankruptcy intact or is sold off to others, Dudas said it is likely to ship less coal, which will help the industry balance its output.
In general, Patriot's highlights the coal industry's broader struggles, Dudas said in a note to clients. Mild weather hurt demand in the U.S. The economic woes in Europe have dampened demand there for coal used to produce electricity. And in Asia, once red-hot construction growth is slowing, leading to a lower appetite for coal used in steelmaking.
Still, as Patriot reorganizes, it will likely become smaller and more able to handle tougher industry conditions, the analyst said. The company could also seek to cut its labor costs through more job reductions.
"The restructuring should provide the company the time and flexibility it needs to adjust its outlook and right its financial position, which should be beneficial in the long term," Dudas wrote.
Shares of Peabody slipped 29 cents to $23.02 in afternoon trading. Arch Coal lost 32 cents, or 5 percent, to $6.34. Elsewhere in the sector, Alpha Natural Resources gave up 4.6 percent, or 37 cents, to $7.65 and Consol Energy slipped 22 cents to $30.12.