Coal Bankruptcy Fears Stoked, but China Risk Is Bigger (Update 1)

The expected outperformance of Peabody, a St. Louis-based company with a history that traces back to the late 19th century, should be taken as a context of the wider woes of the coal sector and some potential bright spots if commodity prices continue to recover.

For instance, in spinning off its longstanding operations in West Virginia and Kentucky into Patriot Coal(PCX) , Peabody has continued to tilt its asset base to Australian met coal and the Powder River Basin.

In a late May reappraisal of the coal industry, Goldman Sachs raised its outlook for the sector to attractive from neutral, and highlighted Peabody as its only new buy-rated coal company.

"We have a less favorable view of the most CAPP thermal- and US metcoal-focused producers within our coverage," wrote Andre Benjamin in the May 28 note that cited valuations, regulatory pressures and leveraged balance sheets as concerns for U.S. centric players.

For more on the sector's troubles, see why old king coal is headed to the retirement home. See 8 ways to play stocks in risky global markets for more on energy investment ideas.

-- Written by Antoine Gara in New York