UPDATE 4-Arch Coal quarterly profit down but beats estimate

* Q3 EPS 16 cents beats Wall Street view 4 cents

* Company sees coal demand, prices starting to rise

* Shares rise 5 pct early but then fall with wider market
(Recasts first sentence, adds CEO comments, updates stock
movement)

By Steve James

NEW YORK, Oct 30 (Reuters) - Arch Coal Inc (ACI.N) said on
Friday that third-quarter profit dropped as it sold less coal
at lower prices, but the mining company forecast demand rising,
especially for steel-making coal, amid signs of an improving
global economy.

The company said it intended doubling its sales of
metallurgical, or coking coal, to 4 million tons next year to
tap demand from steelmakers and also to compete more actively
in the export market in Asia.

Arch shares were down 5.4 percent at $21.86 in afternoon
trading, declining along with the wider market, after initially
rising as much as 5 percent on the better-than-expected
earnings and positive outlook.

"We're seeing positive growth in the global economy,"
Chairman and Chief Executive Officer Steven Leer told Wall
Street analysts, noting China has imported more than 75 million
tons of coal this year.

"The fast-growing Asia-Pacific market, along with the
resumption of economic activity in the Atlantic markets, should
open up even more opportunities for U.S. met and steam coal to
move offshore in the coming months," he said.

"Ongoing supply constraints here at home and around the
world -- coupled with a rebound in energy demand globally --
will exert upward pressure on coal prices over the long term."

Leer said Arch's recent acquisition of Rio Tinto's (RIO.L)
Jacobs Ranch mine -- adjacent to Arch's Black Thunder mine in
Wyoming -- would position the company "for the upturn which we
believe is just beginning to be reflected in coal demand."

However, he said a large drop in demand for
power-generating steam coal has caused stockpiles to build at
U.S. power plants. "We could end the year with as much as 200
million tons of stockpiles which would represent a meaningful
overhang as we head into 2010."

Arch said third-quarter net earnings declined to $25.2
million, or 16 cents per share, compared with year-earlier
earnings of $97.8 million or 68 cents per share. Revenue fell
to $615 million from $769.5 million.

Analysts were expecting 4 cents per share on revenue of
$605.1 million, according to Thomson Reuters I/B/E/S.

"It was a nice beat with very good operating performance,"
said analyst Jeremy Sussman, of Brean Murray Carret & Co. "But
the strong results in Western Bituminous coal were offset by
lower pricing for Central Appalachia as a whole."

Arch said it sold 29.1 million tons in the quarter, down
from 34.8 million tons in the same quarter of 2008, but an
improvement on 27.4 million in the second quarter. The average
sales price slipped to $20.05 from $20.38 a year earlier, but
was higher than the $19.43 in the second quarter.

In July, with coal prices slumping, Arch lowered its sales
volume estimate for this year to between 114 million and 118
million tons. It said on Friday it now expects sales volume in
the 121 million to 125 million ton range. Last year Arch sold
137.8 million tons of coal.

It expects full-year 2009 earnings in the range of 28 to 43
cents per share. Analysts currently expect 31 cents.

Arch completed the acquisition of Jacobs Ranch mine on Oct.
1, for about $764 million, which includes an estimate for
working capital adjustments. The company estimates synergies
from the transaction of between $45 million and $55 million
annually, beginning in 2010.

During the fourth quarter, Arch said it expects to record
about $8 million of one-time acquisition-related expenses.
(Reporting by Steve James; Editing by Steve Orlofsky, Dave
Zimmerman and Matthew Lewis)