Washington (Platts)--20Apr2009

Moody's Investor Service on Monday gave the US coal industry a stable
outlook, saying producers' "strong contracted thermal coal positions" offset
challenges posed by the US economic downturn.

The rating agency said most large US thermal producers have locked into
fixed-price contracts at attractive prices for virtually all of their 2009
production, about 50% of 2010 production and about 20% to 30% of 2011 output.

"This price certainty -- along with improvements in diesel, steel and
other input costs -- should help protect credit metrics and provide rating
support to most US coal companies over the next 12 to 18 months, despite a
grim outlook for the economy," Terry Marshall, Moody's vice president and
senior credit official said in a statement.

Marshall added that the sector's stable outlook also is underpinned by
the expectation that prices for metallurgical coal will settle, and be
realized, in the range of $100 to $130/metric ton for the 2009-2010 contract
year.

Marshall warned, however, that in "the absence of a broader economic
recovery and a firming up of prices on new thermal coal contracts, the outlook
could turn negative as current higher price contracts roll off."

Moody's said that in general, larger companies with greater financial
flexibility and sound liquidity are likely to be better poised "to navigate
these uncertain times and maintain their ratings, while a protracted
recession could have a crippling effect on smaller, higher-cost producers."

The rating agency does not foresee an upturn in coal demand over the near
term, citing weakness in the steel industry, cheap natural gas and strong
coal inventories at utilities.

"Although producers have announced thermal coal production cutbacks and
ratcheted down 2009 met coal production plans, more cuts will be needed to
restore balance in the market and prevent further price declines," Marshall
said.

In addition, Moody's said the Obama administration's focus on cleaner
renewable energy and reducing carbon emissions will have a profound effect on
the coal industry, predicting that the costs of an anticipated CO2
cap-and-trade law "will be particularly deleterious for smaller producers."