NEW YORK (AP) — Shares of Arch Coal Inc. rose Thursday after an analyst predicted that the thermal coal market will improve next year because of declining inventories and a more competitive pricing environment.

THE OPINION: Jefferies analyst Peter Ward told clients in a research note that he believes production cuts made by companies this year should result in smaller inventories of thermal coal, which is used as a fuel by utilities and other companies. That should lead to better coal prices and a stronger coal stock performance.

The coal industry was battered this year when utilities switched to cheaper natural gas from coal to generate electricity. The futures price of natural gas hit a 10-year low of $1.91 per 1,000 cubic feet in April because of booming gas production. Producers also were hurt by a mild winter that cut demand.

Ward noted that natural gas futures have risen to $3.50 or more per 1,000 cubic feet, which has prompted some customers to switch back to buying coal from the Powder River Basin or Illinois Basin.

Gas prices need to stay above $3.50 per 1,000 cubic feet for coal stocks to improve, Ward stated.

"The key risk is a warm winter and another collapse in gas prices," he wrote.

Ward lowered his estimates for the fourth quarter and 2012 to reflect Arch Coal's plan to take on $600 million more debt. He noted that the ultimate goal is to reduce overall debt, which should please investors.

Ward forecast a per share loss of 10 cents in the fourth quarter, compared with his previous estimate of an 8-cent loss. For 2012, he forecast a loss of 4 cents per share, compared with his previous estimate of 2 cents per share.

Analysts surveyed by FactSet, on average, predict a loss of 15 cents per share in the fourth quarter and a loss of 29 cents per share for 2012.

THE STOCK: Shares of the St. Louis company rose 8 cents to $6.55 in morning trading. In the past 52 weeks, the price has ranged from $5.16 to $16.88 per share.