Coal, Rail Stocks Drop After Patriot Coal Dims View

Shares of coal producers Alpha Natural, Consol Energy and Peabody Energy Corp. traded near the bottom among components of the S&P 500 on Friday, after a key competitor said it's facing weaker export markets for coal used to make steel.

Already hit by a mild winter that's damped demand for thermal coal used for power plants and electric heat, Wall Street is now bidding down shares of coal firms based on softness in the market for metallurgical coal.

Patriot Coal (PCX) triggered the sell-off by revealing plans to curtail higher cost production at its Rocklick and Wells operations.

"Metallurgical coal demand has trended steadily downward in recent weeks, most notably in the export market," said Patriot CEO Richard Whiting. "These production cuts, in conjunction with other cost-reduction measures ... are aimed at lowering our mining costs, aligning production with identified sales, and preserving high-quality reserves for a stronger market."

Patriot Coal fell 11.5% to $7.98.

Among components of the S&P 500 (SPX), Alpha Natural Resources (ANR) rang up the steepest loses so far on Friday. Shares of Alpha Natural dropped 10.5% to $20.19 at midday.

Consol Energy (CNX) dropped 6.9% and Peabody Energy Corp. (BTU) moved down by 4.1%.

Shares of railroad CSX Corp. (CSX), which reported 31% of revenue and 25% of volume in 2010 from coal shipments, fell nearly 4%.

Union Pacific Corp. (UNP), which got 22% of its 2010 freight revenue from coal, saw its shares shed 2%.

Norfolk Southern (NSC) fell 3.2%. The company' 2010 annual report said coal, coke, and iron ore accounted for about 28% of the company's railway operating revenues in 2010.

Sterne Agee & Leach analyst Michael Dudas said Patriot's decision to curtail coal production supports his call for a 10-15 million reduction in production forecasts out of the U.S. as mining costs and near-term demand uncertainties force cutbacks.

-Steve Gelsi; 415-439-6400; [e-mail]