UPDATE 3-Steelmakers' woes hit coal miner Massey's profits

(Recasts, adds CEO comments, updates stock movement)

By Steve James

NEW YORK Feb 4 (Reuters) - Coal miner Massey Energy MEE.N said on Wednesday that steelmakers hit by the global recession are looking to renegotiate supply contracts as their coal needs decline.

Chief Executive Office Don Blankenship said in addition to cutting production, the company might reduce its workforce, cut overtime and Saturday shifts, and even idle some mines.

Massey shares fell over 9 percent on Wednesday after the company posted lower-than-expected quarterly earnings and said it was cutting production and pricing estimates for 2009 because of the economic downturn.

"There are a lot of customers with blast furnaces down," Blankenship told Wall Street analysts. "Some customers are looking for longer-term contracts, some want discounts, it's a hodgepodge.

"We would like to sell more met," he said, referring to metallurgical, or coking coal, used in steelmaking.

He declined to elaborate on steel company efforts to renegotiate coal contracts, but said on the conference call that the economic downturn made demand levels uncertain.

Asked if Massey would close mines, Blankenship said: "We will be able to reduce the workforce by attrition and can deal with less production with reduced overtime. We can cut back on Saturday and idle some mines, but we will try to avoid that."

After Massey announced late on Tuesday that fourth-quarter profit missed estimates, Stifel Nicolaus cut its target price for Massey shares to $28 from $31, with a "buy" rating.

The shares fell $1.53, or 10 percent, to $13.74 on the New York Stock Exchange early Wednesday afternoon.

"They lowered production and pricing for metallurgical coal," said Natixis Bleichroeder analyst Jeremy Sussman. "That means they will be shipping less at higher prices, and some margins will be halved.

"This was the first major hiccup for earnings in the coal space," he said.

Arch Coal (ACI.N), Peabody Energy (BTU.N) and Consol Energy (CNX.N) all reported fourth-quarter profits that beat estimates, Sussman noted. Shares of those three companies rose on Wednesday.

Blankenship said the company had improved production efficiency in the fourth quarter, but pricing and market demand were weaker than expected because of a continuing economic slump.

"Production cutbacks in the steel industry forced shipments and prices of metallurgical coal lower," he said in a statement giving lower production and price targets.

Massey now expects to ship 44 million to 46 million tons of coal in 2009, down from its previous target of 46 million to 48 million. It said the average price is expected to be $65 to $67 per ton, down from a previous estimate of $78.

Coal prices rose in recent years on demand for power generation and steel production in China and other developing economies. But spot prices fell about 37 percent in the fourth quarter as demand slumped in the economic downturn.

A ton of Eastern U.S. coal selling for $97.50 on Oct. 1 was going for $61.50 at the end of the quarter, according to the industry newsletter Coal & Energy Price Report. The price was down to $58.55 this week.

In its earnings release, Massey reported net income of $53.6 million, or 63 cents per share, compared with $5.1 million, or 6 cents per share, a year earlier. Revenue rose to $755 million from $585 million, the Richmond, Virginia-based company said.

Analysts had expected earnings of 78 cents per share and $804 million revenue, according to Reuters Estimates.

Massey said in a regulatory filing on Wednesday that it would sell up to 5 million shares to raise funds that it could use for acquisitions or debt repayment among other things. (Reporting by Steve James; editing by John Wallace, Lisa Von Ahn, Richard Chang)