WASHINGTON (AP) â¿¿ Rising overseas demand for two coal types produced in Appalachia will likely boost mine operators' profits in the coming quarters, despite plans by U.S. electric companies to use more natural gas, an analyst said Friday. India and Europe will likely to import more of the plentiful, dirtier-burning coal used by electric plants, Brean Murray Carret & Co. analyst Jeremy Sussman said in a research note Friday. Sales to those markets will likely offset slower demand growth for so-called thermal coal in the U.S. and from China, he said. China is mining more of its own reserves, he said. Spiking prices for the hot-burning metallurgical coal used to make steel are likely to boost profits even more, as developing nations use up the metal to expand their infrastructures, Sussman said. Stocks of many eastern U.S. coal producers, however, declined by more than 1 percent Friday as fears of weak consumer spending led to a market-wide downturn. Yet the ready markets for coal types should increase the companies' profit margins in the coming quarters, possibly leading to more mergers and acquisitions, the Brean Murray analyst said. Four such deals were announced in the past six months. On Monday, Arch Coal Inc. started a tender offer to buy rival International Coal Group Inc. for $3.4 billion. The acquisition would create the nation's second-largest supplier of metallurgical coal, Arch said Monday. "We believe this shows just how scarce good-quality met (metallurgical) coal is becoming," the Brean Murray note said. It said Patriot Coal Corp. looks ripe for a takeover, given its high-quality reserves of the steelmaking coal. Brean Murray affirmed "buy" ratings for Arch Coal Inc., Alpha Natural Resources Inc., Peabody Energy Corp., CONSOL Energy Inc., James River Coal Co., Patriot Coal Corp. and Walter Energy Inc. The research firm affirmed "hold" ratings for Cloud Peak Energy Inc., International Coal Group Inc. and Massey Energy Co.
Tapping international markets should be easier because of unused space on the rail lines that carry coal from mines to seaports, and on shipping routes to overseas markets, Sussman said. He noted that overall production volumes remain below 2008 levels.The companies also appear to have escaped major losses from the stepped-up safety inspections that followed a fatal explosion last year at a Massey mine, the worst mining disaster in decades. "While there is no doubt that inspection rates are at historical highs, the fact that the worst mining accident in over 40 years did not have a more lasting effect on inspection rates" suggests that the scrutiny is winding down, the analyst said. Shares of Walter Energy lost the most, sinking $2.62, or 2 percent, to $118.65. The metallurgical coal-focused company's shares are up 80 percent over the past 52 weeks. Patriot fell 35 cents, or 2 percent, to $22.61 at midday Friday. Peabody Energy lost 62 cents to $58.92. James River slipped 23 cents to $21.15, and Arch Coal Inc. gave back 17 cents to $29.28. Alpha Natural Resources was up 11 cents to $50.38. Cloud Peak lost 9 cents to $20.56. CONSOL Energy recovered slipped 9 cents to $48.62. Takeover target Massey Energy rose 26 cents to $61.23. International Coal Group shares were flat.