September 18, 2012 / 8:03 PM / 6 years ago

As power plants use less coal, Alpha Natural cuts jobs

(Reuters) - Coal miner Alpha Natural Resources Inc ANR.N is cutting 1,200 jobs, roughly 9 percent of its workforce, as increased use of natural gas for power generation dents demand.

The company, which is shifting its focus to the more lucrative steel-making coal, is temporarily closing eight mines in Virginia, West Virginia and Pennsylvania.

The mine closures and production curtailments will reduce annual coal output by about 16 million tons, the company said. It produced 1.1 billion tons in the United States in 2011.

“Cheap natural gas prices and a regulatory regime that is overtly designed to constrain the use of coal has created a double edged sword for us,” Chief Executive Kevin Crutchfield told Reuters.

Alpha is looking to sell thermal coal, used to generate electricity, profitably into a smaller domestic market and to new markets overseas.

“On the thermal side of the equation, we have been focused on the U.S. markets in the past. (We are) trying to scale up our platform as rapidly as possible to participate in global markets,” Crutchfield said.

He said global demand for thermal coal will rise by 2 billion tons over the next 10 to 20 years.

As shale-derived natural gas has become cheaper in the past few years, many U.S. power companies are opting to use it, rather than thermal coal, to generate electricity.

U.S. demand for electricity has slipped so far in 2012, and coal and natural gas now have nearly equal shares of the power-generation market. Coal has had the larger market share.

Alpha said its U.S. thermal coal business was shrinking and that it would focus on supplying coal to fewer plants, which can survive a “stricter regulatory regime.”

“Overall, this is a positive for Alpha Natural and for the industry,” said CRT Capital Group analyst Kuni Chen, who expects the U.S. thermal coal market to bottom in 2013 before recovering in 2014.

Alpha shares have jumped 26 percent in the past month on broader macroeconomic factors, especially China’s decision to boost stimulus spending, Chen said.

Demand for metallurgical coal, or steel-marking coal, has also weakened with growth slowing at top consumer China.

“We do not suspect the current price structure can persist for too long. The benchmark number being talked about out of Pacific Rim is untenable for the producers on a sustainable basis,” CEO Crutchfield said.

Japanese steel mills and Australian producers are likely to settle for $160-$170 a metric ton freight-on-board Australian coal for the fourth quarter, compared with the third-quarter price of $225 settled in June.

The Japanese-Australian quarterly price is still the most important benchmark.

Alpha will offer some of the affected employees jobs elsewhere in the company.

In June, Alpha said it would stop production at four mines in Kentucky, reduce thermal coal production and slash 150 jobs.

Shares of Abingdon, Virginia-based Alpha were down about 3 percent at $7.86 in evening trade.

Reporting by Ernest Scheyder in New York and Swetha Gopinath in Bangalore; Editing by Sriraj Kalluvila and Lisa Von Ahn

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