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Peabody Cross-Trains for the Ultimate Contest

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Think of the companies you own as athletes, and the global financial crisis as a sort of megatriathlon. Now would be a great time to discover whether your stocks are natural-born runners or injured couch potatoes.

Within the coal sector, global leader Peabody Energy (NYSE: BTU  ) is cross-training for the contest by responding quickly to changing market circumstances and trimming production as necessary. This week, the company announced plans to reduce U.S. Powder River Basin coal production by about 10 million tons to 190-195 million tons in 2009, while reducing Australian metallurgical coal production by about 2 million tons to 22-24 million tons. Compared to the scale of production cuts we've witnessed throughout the steel and metal-mining industries, these measures look more like a haircut than an amputation.

Powder River Basin coal from the western U.S. is the cheap stuff, currently fetching about $13 per ton on the spot market compared to more than $80 for the higher-quality Appalachian varieties. Peabody Energy, Arch Coal (NYSE: ACI  ) , and Foundation Coal Holdings (NYSE: FCL  ) are all significant producers of PRB coal, but for now it appears that electric utilities in the U.S. have amassed a surplus inventory. For context, though, consider that Peabody's 2009 production forecast is equivalent to the company's 2007 U.S. mine production, while the shares presently trade near 3 ½ -year lows.

For rail companies like Burlington Northern Santa Fe (NYSE: BNI  ) and Union Pacific (NYSE: UNP  ) -- both of which ship large quantities of Powder River Basin coal -- I believe this sort of news could be more damaging than for a globally diversified miner like Peabody. Rail companies largely skirted the early stages of the financial meltdown on the strength of robust coal shipments to offset declines in construction materials and automobile cargoes.

Without question, the drop-off in global steel demand has been dramatic in the near-term, making an Australian met coal production cut only prudent. However, a growing number of signs from companies like POSCO (NYSE: PKX  ) and Nucor (NYSE: NUE  ) are pointing to at least some measure of demand resumption once stimulus-related spending heats up in China, the U.S., and perhaps elsewhere. Peabody referred to stimulus spending directly as an important component of 2009 production guidance, and remains "confident in the mid- and long-term outlook for coal demand."

I agree, and continue to view this Fool's king of coal as a well-honed athlete.

Further Foolishness:

The "Coal" tag within the Motley Fool CAPS community lists 21 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun! Posco ADR is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Christopher Barker wishes he could squeeze coal into diamonds. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Arch Coal and Peabody Energy. The Motley Fool has a disclosure policy.

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