Sector Wrap: Analyst sees further hike for coal

Coal stocks rose amid a battered broader market Wednesday, after a Stifel Nicolaus analyst raised his price expectations for the commodity next year as supplies are expected to dwindle.

Analyst Paul Forward raised his 2009 price expectation for Central Appalachian steam coal _ a benchmark grade widely used by power plants _ to $105 a ton from $85 a ton. He lifted his price forecast for Central Appalachian metallurgical coal, used in steel production, to a range of $190 to $220 a ton, from $150 to $175 per ton.

He also raised his price expectations for Northern Appalachian steam coal and three other coal mining regions in the U.S.

Forward subsequently raised his 12-month price targets on several of the biggest U.S. producers. He lifted Peabody Energy Corp. to $97 from $82, Consol Energy Inc. to $134 from $104 and Massey Energy Co. to $123 from $73. He rates all three companies "Buy."

The analyst predicted that coal prices _ already driven by soaring international demand for steel production in China and India and electricity in Europe _ will rise as supplies are eaten up in the U.S.

He projects coal supplies in the country will fall short of demand by about 15 million tons this year and about 11 million tons in 2009, leading utilities to turn to their stockpiles to fuel their plants.

He also suggested that coal companies should reap big profits through 2010 as demand continues to outweigh supply. Forward's predictions are nearly 50 percent above Wall Street's average forecast for 2009 and 2010.

Peabody shares rose $4.09, or 5.2 percent, to close at $83.06, after hitting an all-time high of $83.64 during the session. Massey rose $4.64, or 5.4 percent, to $90.32 _ slightly below the all-time high of $90.52 reached earlier in the day.

Arch Coal Inc. gained $3.79, or 5.3 percent, to $75.40 and Foundation Coal Holdings Inc. gained $3.35, or 4.4 percent to close at $78.72. Foundation hit an all-time high of $78.98 during the session.

Consol Energy blasted to a new all-time high of $117.38, before pulling back slightly to finish up $8.02, or 7.3 percent, at $117.34.

Alpha Natural Resources surged $3.92, or 4.1 percent, to $100.05. It hit an all-time high earlier in the session of $100.54.