Arch, Patriot Upgraded by Citi

Citi analysts have upgraded Arch Coal to buy from hold and Patriot Coal to hold from sell on a short-term trade, amid an incline in metallurgical coal that they say could benefit the entire sector.
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NEW YORK (TheStreet) -- Citi analysts have upgraded Arch Coal (ACI) - Get Report to buy from hold and Patriot Coal (PCX) to hold from sell on a short-term trade, amid an incline in metallurgical coal that they said could help all the coal producers they've been covering in some way or another.

For example, although Arch Coal is predominantly a thermal coal producer with "met" production of 4 to 5 million tons, compared with a company total of about 150 million tons, "CApp (Central Appalachia) mines remain a key earnings driver, accounting for 34% of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) in 2009 and an estimated 29% of EBITDA in 2010 with 40 to 45% of CApp sold as met," Citi analyst Brian Yu wrote in a note to investors.

Arch Coal stock has climbed 2.9% to $26 Monday morning, while Patriot Coal stock has gained 3.4% to $22.70.

>> Who Owns ACI?: Atticus Capital

Yu continued to favor

Alpha Natural Resources

(ANR)

and

Peabody Energy

(BTU) - Get Report

for metallurgical coal exposure, while prices for "met" continue their run-up from the New Year amid robust Chinese steel production and mill restarts in the U.S. and Europe.

"We are now forecasting prices for Asian benchmark hard-coking met to reach $300 by year-end" partly because of volatility brought about by a new quarterly pricing mechanism and near term-producer pricing power, Yu wrote.

Alpha Natural Resources stock has risen 1.6% to $53.70, and Peabody Energy stock has jumped 3% to $47.70.

"Should metallurgical coal prices trend as we expect, coal equities are likely to do well," Yu wrote.

-- Reported by Andrea Tse in New York

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