Analysts cut coal price forecasts but still bullish

HOUSTON, July 28 (Reuters) - Coal analysts at FBR Capital Markets on Monday cut their forecast of 2010 U.S. coal prices because they foresee a natural gas glut, but they said they remain bullish on coal in the long term.

David Khani and Luther Lu said shale gas drilling will accelerate in major new plays, increasing gas supply and lowering prices for gas, in turn pressuring coal which competes with gas in the dominant power-generation market.

They forecast gas would average $7.25 per million BTUs in 2009, 23 percent lower than the market consensus of $9.82, and to average $6.25 in 2010, 31 percent below the consensus of $9.04.

The FBR analysts kept their estimate for coal Northern Appalachian and Central Appalachian coals at $100 a short ton for 2009 but cut it to $90 from a previous estimate of $105 a ton for 2010.

"In concert with the lowered natural gas outlook, we are lowering the 2010 CAPP and NAPP coal price forecast and reducing the price targets," they wrote in a report.

They lowered their earnings forecasts for 2010 for all the coal companies they follow, notably 19 percent for Consol Energy (CNX.N) and 22 percent for Foundation Coal (FCL.N)

They also lowered all their 2010 share price forecasts, prominently 28 percent for Alpha Natural Resources (ANR.N), 22 percent for Consol and 19 percent for Foundation.

"Nonetheless, we still foresee significant value in the sector and would be buyers of this sharp pullback," they wrote.

Khani and Lu said they see coal as an increasingly globalized commodity that is "better positioned than ever before to handle the potential threat of a gas glut." (Reporting by Bruce Nichols; Editing by David Gregorio)