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Sector Snap: Coal Companies Slide

NEW YORK (AP) ¿ Shares of coal companies fell with the broader market Thursday as an analyst downgraded several players, saying they will be hurt by lower demand, competition from natural gas, swollen stockpiles and underutilized steel mills.

Dahlman Rose analyst Daniel Scott downgraded Alpha Natural Resources Inc. and Foundation Coal Holdings Inc. to "Hold" from "Buy" and Patriot Coal Corp. to "Sell" from "Hold."

Scott said coal stocks have rallied too far over the past several weeks and could see a pullback in the near term. Scott noted that the domestic coal sector is up an average 82 percent quarter-to-date and 61 percent year-to-date. Despite encouraging production cuts and news that Alpha will acquire Foundation Coal, "the underlying commodity continues to lag," Scott said.

Reduced electric demand, increased regulations and natural gas price weakness continue to batter coal stocks. As the price of natural gas has softened, it has become competitive with coal.

Scott added that "with domestic steel mills continuing to run at less than half utilization and demand for export coal evaporating," demand for metallurgical coal will continue to wane.

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