Analyst cuts ratings for coal cos. on weak demand

Associated Press

NEW YORK (AP) -- A Raymond James analyst on Monday cut his ratings for a trio of coal companies, saying that mild winter weather has driven down the price of natural gas and reduced demand for coal.

THE OPINION: James Rollyson said that after a tough 2012, he was originally optimistic about coal company prospects in 2013, as natural gas companies slowed their production growth and natural gas prices began to rise.

Rollyson thought that higher natural gas prices would prompt some utilities to switch from gas to coal, boosting demand for the coal companies.

But while natural gas prices did rise a bit, the number of heating days in in November and December ran about 13 percent below normal and 2 percent below last year's mild winter. In addition the weather in many parts of the country is expected to remain mild, at least for the near term, further reducing heating demand, Rollyson said.

Natural gas futures prices have fallen from about $4 per 1,000 cubic feet in November to $3.27 on Monday, a drop of more than 18 percent.

Rollyson said that while natural gas prices, and demand for coal, should still be up from last year's levels, they won't be as high as previously expected and will probably delay a recovery in U.S. coal prices.

As a result he cut his ratings for Cloud Peak Energy Inc. and James River Coal Co. to "Market Perform" from "Outperform" and for Consol Energy Inc. to "Outperform" from "Strong Buy."

THE SHARES: In afternoon trading, Cloud Peak shares fell 33 cents to $19.13; James River lost 12 cents, or 3.3 percent, to $3.48; and Consol dropped 60 cents to $31.83.