UPDATE 3-Alpha Natural cutting coal output, targets

* Q1 adjusted loss 27c/shr vs Street view loss 6c/shr

* Says will cut more coal production

* Intends to double thermal exports

* Shares down 1 percent

By Steve James

May 3 (Reuters) - Coal miner Alpha Natural Resources Inc posted a wider-than-expected quarterly loss and cut its 2012 production target, but it forecast that the market for steelmaking coal would improve later this year.

The company said on Thursday that because of weak demand from power utilities for its thermal, or steam coal, it would further cut production and double exports of coal used to generate electricity.

"The met (steelmaking metallurgical coal) market has the ability to improve more rapidly than the domestic steam coal market, potentially as soon as the back half of 2012," Chief Executive Officer Kevin Crutchfield told analysts on a conference call.

"The market for benchmark quality coals in Asia appears to have stabilized due to renewed growth in Chinese steel production and labor and weather related supply disruptions in Australia," he said on the call.

Crutchfield said that while Asia was encouraging, lower quality coking coals in Europe continued trading at a fairly wide discount to the benchmark price.

In contrast, Crutchfield said, demand for thermal coal has slumped because of a mild U.S. winter, which lowered demand for power. Also, record low natural gas prices have spurred some utilities to switch from coal not only in the eastern U.S. but for the first time "in a significant way" at utilities that burn cheaper Powder River basin coal from Wyoming and Montana.

Power plant inventories had risen to over 200 million tons, near record high levels, he said, and coal-fired generation has fallen below 40 percent of U.S. electricity generation.

To manage the lower demand, Alpha will soon make further production cuts, he said, lowering its 2012 output target to 100 million tons to 116 million tons from a previous goal of 107 million tons to 124 million tons. He gave no details of the cuts. Alpha slashed 4 million tons in February.

Some coal not shipped to power plants will be exported, Crutchfield said. "In 2012, we expect to roughly double our direct thermal export to approximately 4 million tons."

He estimated a total of 10 million tons of Alpha's thermal coal production would ultimately hit the export market through third-party transactions. "We've recently succeeded in shipping thermal coal to destinations as far away as India and China," Crutchfield said.

Alpha's first-quarter net loss was $29.1 million, or 13 cents a share, compared with net income of $49.8 million, or 41 cents a share, for the same period last year.

Excluding items such as expenses arising from Alpha's $7 billion acquisition of Massey Energy, severance from idled production and weather-related property damage, the adjusted loss was $58.2 million or 27 cents per share. That compared with analysts' average estimate for a loss of 6 cents per share, according to Thomson Reuters I/B/E/S.

Total revenue rose to $1.93 billion from $1.13 billion a year before as the company sold more coal -- 28 million tons compared with 21 million tons in the 2011 quarter -- with the addition of Massey mines.

Earlier this week, another major U.S. producer, Arch Coal Inc, posted an operating loss, cut its sales forecast and slashed its dividend amid weak thermal coal prices and slumping demand.

According to industry newsletter Coal & Energy Price Report, a ton of Appalachian coal that sold for $70 at the start of the year was now selling for less than $59.

The latest U.S. Energy Department figures showed domestic coal consumption fell 18.8 percent in the fourth quarter of 2011 from the third quarter to 227.1 million tons, the lowest level since the second quarter of 1995.

In afternoon trading on the New York Stock Exchange, Alpha's stock was down 2.4 percent at $15.13.