Image source: Alliance Resource Partners.

What: Coal miner Alliance Resource Partners LP's (NASDAQ:ARLP) units advanced by more than a third in April, with general partner Alliance Holdings GP (NASDAQ: AHGP) coming along for the ride with a roughly 20% advance -- even as both partnerships cut their distributions at the end of the month.

So what: The advance at both Alliance and Alliance Holdings started in the beginning of April, well before the distribution cuts were announced. A big piece of the rally is likely due to the changes taking place throughout the coal industry, most notably production cuts at miners. For example, Alliance's production in the first quarter was off by 25% from the fourth quarter of 2015.

Alliance had, for years, been able to increase production as its Illinois Basin coal stole market share from other coal-producing regions. That started to change last year and really came through in the numbers in the first quarter. On the surface that sounds like bad news, and it is in some ways.

But the real issue here isn't coal supply as much as it is coal prices. In the first quarter Alliance's coal sold for roughly 2% more than it did in the fourth quarter. That may not sound like much, and it isn't, but it could be the beginning of the end for the downturn. That's a good reason for more aggressive investors to start getting excited about Alliance, and its general partner, since Alliance is one of the best-run coal companies around.

Now what: The bigger picture, however, is that this downturn isn't over yet, even if there are glimmers of hope. In fact, Alliance thinks there are a few more quarters to go before supply and demand start to balance out. And the distribution cuts speak to the difficult market environment, where banks and financial markets are increasingly pulling back financing options for coal miners. Note that both partnerships sold off a bit after the cuts, as you'd expect -- but the decline was a drop in the bucket compared with the hefty gains earlier in the month.

So if you're a contrarian investor, Alliance and Alliance Holdings are both interesting partnerships to look at, since coal may be starting to find a bottom. Alliance's own production declines are evidence of that. But if you aren't willing to take on the risk of the still troubled coal sector, don't bother looking here. The pain may not be over just yet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.