Coal Shares Lower On Patriot Coal Outlook

The Associated Press

Shares of coal companies sank Tuesday after Patriot Coal Corp., a major producer, lowered its sales volume and price estimates for Appalachian metallurgical coal, citing a potential default by a customer it didn't identify.

Coal companies like Patriot have been struggling to remain profitable as coal prices remain weak. Some have shuttered mines and cut back production this year to reduce overhead costs.

The price of coal has fallen for a variety of reasons. Demand has been weak for metallurgical coal, which used to make steel. Steelmakers are squeezed by low prices of their own.

Demand for thermal coal, which is burned to make electricity, has been undercut by cheap natural gas supplies. About half of all U.S. electricity is generated from coal.

Shares of Patriot plunged almost 17 percent after it cut its outlook. Shares of other coal companies also fell, though not as severely. Peabody Energy Corp., the nation's biggest coal company, and Arch Coal Inc., the second biggest, each lost more than 4 percent.

Patriot Coal cut its full-year sales outlook to 3.9 million tons of metallurgical coal at $142 per ton, down from 4.9 million tons at $138 per ton. It cut its outlook for 2013 to 200,000 tons at $122 per ton, down from 400,000 tons at $120 per ton.

The company said its results were hurt by the potential default of a customer it did not name.

But its forecast carried broader implications for the market. Patriot said the current spot price for metallurgical coal is about $25 per ton to $30 per ton less than the price established in the original contract with the customer.

Citigroup analyst Brian Yu lowered his earnings and share price estimates for Patriot after its announcement. For 2012, he predicted a loss of $2.20 per share compared with his previous estimate of a loss of $2.12 per share. His share-price target is $6, down from $7.

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