You know Mr. Market's having a bad day when a stock's 1.5% decline looks like a strong trading session. That's just what happened with Arch Coal (NYSE:ACI) on Friday, a day that saw the SPDR S&P Metals & Mining (AMEX:XME) ETF fall in lockstep with the broader market indices.

Judging by the headlines, it's surprising that Arch's shares were spared. A 46% earnings drop is not often greeted with equanimity. As always, there's plenty more to the story here, but let's quickly run through the firm's quarterly results.

Coal revenue dropped 2%, with lower coal prices more than offsetting the firmwide boost in tonnage sold. Cash and operating costs rose, which crimped margins. Operating income thus fell 39%, and it's just a short cruise from there to the bottom-line bruising mentioned earlier.

A look at sequential results reveals a very different picture. Cash and operating margins improved on account of rising prices, combined with relatively flat costs across roughly 90% of Arch's production portfolio. While Central Appalachia, which accounts for the remaining piece of the business, registered a slide in prices, cash costs improved, thanks to the divestiture of a high-cost mine.

Central Appalachia may look like it's the runt of the pack, but this is the part of the business that you should actually be most excited about. Arch is rolling out production at Mountain Laurel at a time when the world metallurgical coal market is booming. Prices for import into the European market recently touched a record, thanks to Asian demand siphoning off supply from Australian and South African ports.

This market tightness has of course created a bonanza for dry bulk shippers like Excel Maritime (NYSE:EXM) and Diana Shipping (NYSE:DSX), but it has also opened the door for North American metallurgical coal players to step in and reap the reward of higher export rates.

As I noted in early August, Fording Canadian Coal (NYSE:FDG) will benefit once its contracts expire in March. Arch and Peabody Energy (NYSE:BTU) can cash in even sooner. Investors have realized this, bidding up the group by roughly 20%. The shares of these companies sit at a level that leaves room for rewards, certainly, but nothing to get too stoked about.

For further Foolishness:

  • Last quarter, I broke down the ABCs of the PRB.
  • Check out this dry bulk fire sale.
  • Here's my take on governmental coal coddling.

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Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.