May 4, 2009 / 2:43 PM / 10 years ago

UPDATE 1-Goldman upgrades US coal sector to attractive

May 4 (Reuters) - Goldman Sachs upgraded its Americas coal coverage view to “attractive” from “neutral,” and said it expects demand to rise and prices to stabilise, sending coal stocks soaring Monday morning.

Shares of coal miner Massey Energy MEE.N were up as much as 20 percent, while those of Foundation Coal Holdings Inc FCL.N, the fourth largest coal producer in the United States, were up 16 percent. The Dow Jones Coal Index .DJUSCL was up more than 11 percent.

Expectations for China’s economic growth will rise in the coming months, which could improve global demand for metallurgical coal, Goldman Sachs analyst Brian Singer wrote in a note to clients.

Singer said while he did not expect a meaningful direct impact of increased China commodity demand on US coal demand in 2009, this could potentially improve global metallurgical coal supply/demand balances, reducing downside pricing risk for 2010.

The analyst also said he expects less coal-to-gas substitution during the summer months and that he sees natural gas prices rising in the next six months which should improve coal prices.

He said the decline in production in recent weeks was a positive, but added that more mine closures were needed to become bullish. “We are currently expecting production to fall 4 percent in 2009.”

For a summary of the ratings assigned to the coal stocks, by Goldman Sachs, double click [ID:nWNAB2597] . (Reporting by Adveith Nair in Bangalore; Editing by Gopakumar Warrier)

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