US coal company sees production rebound next year

NEW YORK Jan 30 (Reuters) - Coal miners are likely to pare back production further during 2009, but the markets will rebound next year when demand from steelmakers and power plants returns, the head of Arch Coal (ACI.N) said on Friday.

"We will see major reductions in global production," Chief Executive Officer Steven Leer told Wall Street analysts. "But this is a classic cycle in the commodities business and it is setting us up for 2010 and 2011.

"The general trend is upward, but not in a straight line."

Leer's upbeat assessment came during a conference call after Arch reported fourth-quarter profit slumped more than 20 percent and said it was cutting back 2009 coal production.

"I am pretty encouraged at 2010 after we weather the down cycle. I believe the world economy will start to recover in the second half or fourth quarter of this year.

"There is more pain to come, but governments around the world have stimulus packages. We have seen the credit markets start to function again and that is a critical signpost for companies to climb back," Leer said.

Asked about the state of the coal markets, he said metallurgical, or coking coal, had been hard hit by the economic downturn, when steel manufacturers cut production.

"Met saw a real freeze ... but steel companies anticipate coming off the low of the fourth quarter with a steady build in '09," Leer said.

The markets for thermal, or steam coal, used in power generation, are "not recession-proof, but recession-resistant.

"People still turn on the lights," he said, adding Arch expects a 1 percent decline in electricity generation this year. As a result, there will be a slowdown in coal demand.

Coal prices rose in recent years on demand in China and other developing economies, but spot prices fell about 37 percent in the fourth quarter.

A ton of Eastern U.S. coal selling for $97.50 on Oct. 1 was going for $61.50 at the end of the quarter, according to the industry newsletter Coal & Energy Price Report. The price was down to $57.63 this week.

Leer was asked about prospects for the coal industry under the new administration in Washington. President Barack Obama wants coal-burning utilities to find cleaner ways to use America's coal reserves and wants to develop solar and wind energy and encourage reductions in greenhouse gas emissions.

"The regulatory environment always gets tougher as we move forward and '09 is no exception," he said. "It's the same in safety regulations."

Leer anticipated intense debate over carbon capture and climate change, but with Obama's priority the economy, doubted there would be any change this year.

"The reality is that 50 percent of the nation's electricity is generated by coal," he said. Renewable energy sources were needed, too, "but the priority has to be rebuilding the grid system.

"That's a long-term deal, over the next four or eight, or 15 years, coal will continue to do the heavy lifting in generating electricity." (Editing by Matthew Lewis)