Stock in U.S. coal mining companies fell on Wednesday after Macquarie Research downgraded the sector to ‘neutral’ from ‘overweight,’ saying it believes demand for seaborne metallurgical, or steel-making, coal in China is slowing.

Analyst Curt Woodworth also said the fundamentals for thermal coal, used mainly by utilities to generate electricity, continued to worsen and he expected producers to lower 2010 volume expectations this quarter.

In afternoon trading on the New York Stock Exchange, Massey Energy stock was down $1.88 or 5.67 percent, at $31.30 and Alpha Natural Resources shares were $1.80, or 4.56 percent lower, at $37.66.

Consol Energy fell 3.4 percent to $47.58, Peabody Energy was 2.69 percent lower at $39.14 and Arch Coal was down 2.54 percent at $23.01.

In a research note, Woodworth said demand is slowing because Chinese domestic metallurgical coal production is increasing and China has built excess inventory of steel.

He said the substitution of natural gas for coal by electric utilities has depressed demand for U.S. thermal coal by about 50 million tons.

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