PREVIEW-UPDATE 1-U.S. coal miners looking at lower profits

* Third-quarter earnings seen sharply down

* Steelmaking coal favored over power generation

* Coal mining stocks down (Updates with mining stocks down, 6th paragraph)

By Steve James

NEW YORK, Oct 16 (Reuters) - Most U.S. coal miners are looking at sharply lower third-quarter earnings, but those that produce coal for steelmaking and export should enjoy higher prices in the longer run than those that sell coal for power generation, analysts say.

Last year's economic downturn hit both steel and electricity demand hard and miners were forced to cut back on production as coal prices slumped. But now there are signs that coal demand, at least from steelmakers, is coming back.

"We generally favor coal producers with international leverage, especially those tied to steel production via metallurgical coal, over thermal coal producers," analyst Jeremy Sussman of Brean Murray, Carret & Co said on Thursday.

And Morgan Stanley's Mark Liinamaa and Wes Sconce said they expected premium hard metallurgical or coking coal for steelmaking to be selling at $160 per tonne in 2010, with prices trending higher through 2013. In June, the benchmark price for coking coal was $129 per tonne.

"Our commodity team sees higher seaborne thermal coal prices going forward but we do not expect demand for U.S. thermal coal exports for the next 12-18 months," the Morgan Stanley analysts said in a research note.

In afternoon trading on the New York Stock Exchange on Friday, the S&P index of coal stocks .GSPCOAL was down 1.2 percent, with Alpha Natural Resources (ANR.N) the biggest loser, down 3 percent at $37.61. Consol Energy (CNX.N) fell 2.4 percent to $49.76, Massey Energy (MEE.N) fell 1.4 percent to $32.89, Peabody Energy (BTU.N) was down 1.3 percent at $41.69 and Arch Coal (ACI.N) was off 11 cents at $23.94.

This week, Dahlman Rose & Co downgraded Peabody, Arch and James River Coal (JRCC.O) to "hold" from "buy," saying the weak outlook for thermal coal does not support current valuations.

Peabody kicks off the earnings season for coal miners next Tuesday, followed by Arch, Consol Energy (CNX.N), Massey Energy (MEE.N) and Alpha Natural Resources (ANR.N).

Of those producers, only Consol is seen posting a profit bigger than in the 2008 quarter, according to Thomson Reuters I/B/E/S. Analysts on average expect Consol's earnings to be 66 cents per share, compared with 49 cents a year earlier.

"Consol has one big met mine (Buchanan, in Virginia) and we expect it to do better than expected as there has been a lot of spot demand from China," said Sussman.

He said Arch had the least metallurgical coal of the major miners and analysts currently expect its profit to be 4 cents per share, way off last year's 68 cents.

Peabody produces coking coal at its Australian mines, but analysts expect a big drop in third-quarter profit from $1.38 per share to 22 cents. Earnings of Massey, which has about 25 percent metallurgical coal, are expected to drop to 18 cents per share from 86 cents a year ago and Alpha's profit is expected to drop to 39 cents from 90 cents a year earlier.