Fitch Ratings says coal miners have stable outlook

The nation's coal industry should remain stable despite weaker demand because of cost-cutting measures to conserve cash, according to a Fitch Ratings report released late Thursday.

Producers also are faced with lower natural gas prices, and diminished demand for electricity and metallurgical coal used in strengthening steel, said the report, "Coal Producers Update: High Inventories, Low Gas Prices, Production Cuts."

Another factor weighing on the industry is ongoing concerns about carbon emissions, Fitch Ratings Director Monica M. Bonar said.

"We are seeing more producers scaling back capital spending together with planned production to conserve liquidity," she said.

"Looking ahead, we expect to see more instances of building cash balances than either debt repayment or share repurchases, and opportunistic merger and acquisition activity, generally with a high equity component," she said in a statement.

Well-capitalized producers have liquidity and modest near-term debt maturities, Fitch said, forecasting a stable outlook.

Although the industry has seen lower spot prices this year, prices for most steam coal contracts for 2009 and part of 2010 were set in late 2007 and early last year when prices were higher, Fitch said.

Some companies have shelved plans for new coal plants, closed some operations and cut production to contain costs. Others are looking for opportunities to acquire or sell assets.

For example, Consol Energy Inc., the largest underground coal producer in the United States, announced last month it planned to idle two operations in southern West Virginia and in eastern Kentucky coalfields. Layoffs could be announced in July.

Last month, Alpha Natural Resources said it would buy Foundation Coal Holdings for about $1.4 billion in an all-stock deal.

Shares of coal companies were mostly down in midday trading along with the overall market.

At midday, shares of Consol Energy Inc. fell $1.32, or 3.1 percent, to $41.44; Peabody Energy Corp. lost $1.07, or 2.9 percent, to $35.71; and Massey Energy Co. shed $1.24, or 4.8 percent, to $24.50.

Shares of Arch Coal Inc. fell 72 cents, or 3.7 percent, to $18.73; and James River Coal Co. dropped 89 cents, or 3.9 percent, to $22.03.

On a brighter note, shares of Alpha Natural rose 69 cents, or 2.5 percent, to $29.45, and shares of Foundation Coal rose 59 cents, or 1.9 percent, to $31.32.