Hey, Who Turned Out the Lights?

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The way electric utilities in the U.S. are shunning coal purchases, you might think we're living in the dark.

Of course, the lights are still lit, and Fools are still booting up computers to follow our ongoing analysis of a complicated coal market. Let's examine some key coal results for your Foolish consideration.

Alpha Natural Resources (NYSE: ANR), whose prolific metallurgical coal production attracted a ditched buyout bid from Cliffs Natural Resources (NYSE: CLF) last year, missed expectations with a 77% earnings decline, on a 45% revenue reduction from prior-year levels. The company further reduced its outlook for met coal production, as a reported bottoming in the steel market has nonetheless failed to stoke demand.

Foundation Coal Holdings (NYSE: FCL), whose impressive thermal coal portfolio will soon be folded into Alpha Natural Resources in an all-stock deal, enjoyed an excellent quarter, despite horrific market conditions that sullied margins for competitors like Arch Coal (NYSE: ACI). Foundation eroded production costs by 15% to absorb the impact of reduced sales, and continued to enjoy relatively strong pricing, thanks to an aggressive hedge position for 2009 sales.

International Coal Group (NYSE: ICO) offered insight into how Foundation may have achieved those cost cuts, noting that curtailing production from higher-cost operations offset the impact of lower production volumes upon the cost structure. The Appalachian miner beat expectations with earnings of $10.4 million on flat revenue, and suggested "the worst of the market weakness is behind us as metallurgical shipments have increased recently and utility prices appear to have stabilized." Defining "cautious optimism," CEO Ben Hatfield added, "Coal demand remains very weak and meaningful thermal production recovery may not occur until 2010".

The shape of an American recovery
While bellwether companies from steelmaker Nucor (NYSE: NUE) to rail operator CSX (NYSE: CSX) have joined coal executives in declaring a bottom in their intertwined industries, this Fool is more concerned about the shape of any recovery. After a drastic dip in demand that saw utilities freezing coal purchases, paying millions to back out of sales agreements, and creating a stagnant spot market, I'd sure hope that was a bottom.

With recent production cuts under way, though, and conditions still so weak that one customer would rather shell out $27 million to International Coal Group than honor a 1 million-ton-per-year purchase agreement, I'm concerned that any American economic recovery may be shaped like an "L" … with a decidedly long base.

Further Foolishness:

• Your canary in a coal mine.
• Ground control to major coal …
• Don't overlook the changing face of coal.

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