UPDATE 2-Alpha Natural beats forecasts on cost cuts; shares jump

* Loss before items 19 cts/shr vs Street view loss 55 cts

* Production cuts hit revenue but improve unit costs

Feb 14 (Reuters) - Alpha Natural Resources Inc, the top U.S. producer of coal used for making steel, reported a narrower-than-expected quarterly operating loss on Thursday thanks to aggressive cost-cutting, sending its shares up more than 10 percent.

The company, which curbed output last year to control costs as low prices battered U.S. coal producers, said it may "further adjust" its operations to reflect industry conditions.

Revenue tumbled in the fourth quarter and the company's operating loss widened, but the loss was much smaller than analysts expected.

CRT Capital Group analyst Kuni Chen said lower costs helped Alpha Natural beat forecasts; he said the company's cost forecasts were also better than he expected.

"The future for a lot of these companies is basically positioning defensively for as long as possible until the markets recover," he said.

"We think we're going to see more of that recovery in 2014 and 2015, so you need the cost structure and the balance sheet flexibility to make it through."

Chen said Alpha's balance sheet looked "well-positioned."

TOUGH TIMES

For the fourth quarter, Alpha's net loss narrowed to $128 million, or 58 cents a share, from a loss of $793 million, or $3.62 a share, a year earlier. Revenue fell to $1.56 billion from $2.07 billion.

The company took a charge of $188 million to write down the value of assets, which it said was based on conditions in the coal market and lower expected future production, especially of thermal coal, used in power stations.

Excluding the impairment and restructuring charges and other special items, Alpha's adjusted loss was 19 cents a share. On that basis, analysts' average forecast was a loss of 55 cents a share, according to Thomson Reuters I/B/E/S.

Alpha shares rose $1.15, or 13.5 percent, to $9.63 in morning trading on the New York Stock Exchange.

THERMAL POWER

Thermal coal is expected to be 35 percent cheaper than natural gas this year, according to the U.S. Energy Information Administration, and that may spark a recovery in consumption, which dropped to its lowest level in two decades in 2012. But even if demand improves, high inventories look set to delay price increases.

U.S. coal miners have been cutting expenses, and Alpha Natural is no exception. In September, the company said it would cut about 1,200 jobs, or 9 percent of its work force, idling mines in Virginia, West Virginia and Pennsylvania, and reducing production in the Powder River Basin, a coal-rich region in eastern Montana and Wyoming.

The company said then that it would focus on scaling up production of metallurgical coal, used in steelmaking, for the export market. As with many firms that sell to the steel industry, Alpha Natural has said it sees big growth opportunities in the emerging economies.

The average cost of coal sales per ton for Alpha Natural's eastern U.S. operations dropped in the fourth quarter, and unit costs fell on an adjusted basis as well, to $68.55 from $78.57 a year earlier. Costs edged lower in the west as well.

Those costs, the company said, are not sustainable. But they are not seen rising much, to $71 to $75 per ton in the east for 2013.