U.S. Markets closed

Sector Snap: Recovery predicted for coal producers

NEW YORK (AP) -- Shares of coal miners surged Friday after the U.S. announced bold new measures to ramp up the economy, while Sterne Agee predicted that, along with production cuts, prices for coal will improve for at least the next two years.

The coal industry has been battered by anemic demand for both thermal coal, which is used to generate electricity, and metallurgical coal, which is used in steel manufacturing. In addition to a global economic slowdown that has curtailed power demand, many utilities have shifted to natural gas as prices hit 10-year lows and new environmental regulations loom.

Almost every major coal producer saw company shares hit annual or all-time lows in 2012.

Analyst Michael Dudas believes the actions of the U.S. Federal Reserve and other central banks in Asia and Europe will revive cyclical demand.

The Fed will buy $40 billion a month in mortgage bonds until the U.S. economy shows a sustained recovery, the first time it's ever tied the length of a program to its success.

The stimulus measures, combined with production cuts and a forecast for a colder winter, should help balance the coal market, Dudas said. He predicted a cyclical recovery in 2013 and 2014.

Dudas expects thermal coal demand to decline by about 130 million tons this year, with a modest recovery in 2013 and about 2 percent growth in coal consumption by 2014.

He lowered his 2012 average benchmark metallurgical coal price to $209 per ton from $225 per ton and the 2013 estimate to $215 per ton from $240 per ton. He also set an initial price estimate for 2014 at $225 per ton.

In afternoon trading, shares of Arch Coal Inc. 8 percent to $7.98; Alpha Natural Resources Inc. rose 8.1 percent to $8.89; Peabody Energy Corp. gained 4.2 percent to $25.88; Consol Energy Inc. increased 41 cents, or 1.2 percent, to $32.91; James River Coal Co. gained 27 cents, or 8.5 percent, to $3.43 and Walter Energy Inc. increased $2.14, or 4.8 percent, to $38.88.