* S.African, European prompt coal down to about $85/mt
* Low-margin mines at risk if drop below $80/mt
* Healthy supplies coinciding with weak demand
LONDON, March 6 (Reuters) - Thermal coal producers around the world face the prospect of mine closures as oversupply and weak demand drive down prices towards unprofitable levels.
European and South African physical coal prices have fallen back below $90 a tonne and analysts say that the low prices will hit Australian mines in particular, where miners are also contending with a strong Australian dollar and high costs.
Indonesian producers are also expected to have margins squeezed as low prices coincide with the potential of rising taxation.
Traders said that prices have dropped back to levels that may cause some low-revenue mines to close because they can't generate profits at such low prices.
"There's just too much coal around and too little demand, so at some point the mines with the lowest profit margins will have to shut," one physical coal trader said.
"I think that situation will arrive if physical prices in Europe or South Africa fall below $80," he added.
April deliveries of South African coal from the port of Richards Bay have dropped to $84 a tonne, while April deliveries to Amsterdam-Rotterdam-Antwerp (DES ARA) are down to $86.50 a tonne on the globalCOAL trading platform.
At $94.10 a tonne, only Australian coal from the port of Newcastle, New South Wales, is still above $90, benefiting from stronger demand in Asia.
Xavier Prevost, a Johannesburg-based analyst, said that South African producers are profitable at current prices but that miners are likely to receive less for their exports as the northern hemisphere moves from winter into spring and summer.
"We'll see in two, three months," he added.
In Indonesia, the world's top coal exporter, the low prices have come as regulatory costs are increasing.
"The government is currently proposing to raise royalties to 13.5 percent, a move which would seriously damage the profitability of many small-scale Indonesian coal mines," Australian bank Macquarie said in a research note on Friday.
In Australia, the weak coal market coincides with a strong Australian dollar and high labour costs, pushing some miners into the red.
HIGH SUPPLIES, LOW DEMAND
The low coal prices are a result of healthy export levels from traditional exporters, such as Australia, South Africa and Colombia.
Adding to the glut, the continuing shale gas boom in North America has led to a collapse in domestic gas prices, reducing coal demand and forcing miners to sell abroad, mainly to Europe.
Although European utilities are burning as much coal as they can because it is more profitable to generate electricity from coal than from gas, its main fossil-fuel competitor, the economic slump in Europe is keeping a lid on demand.
The Asian outlook is not much better.
Japan's power generation in February was down 7 percent on last year, a Reuters calculation based on industry data shows.
In China, meanwhile, a possible change in environmental regulation could lead to further dents in demand.
The world's biggest coal buyer and burner continues to struggle with rising pollution, much of which comes from coal-fired power stations.
Deutsche Bank said that Australian coal prices would be worst affected if China enforces stricter legislation that weakens its demand for coal, potentially dropping to as little as $72 a tonne.
However, such moves in China would also be felt in European and North American coal markets.
"In the Atlantic Basin, we expect South Africa would likely shift its emphasis back to Europe, as its lower cost base would allow it to displace some volume of Russian coal into Europe," the bank said. "For the United States, the international market would become much less appealing for exports."
For some, the malaise in coal and other resources markets is partly the result of overinvestment and the failure to rein in supply to protect prices.
Last week Ivan Glasenberg, chief executive of commodities trader Glencore, which is trying to buy miner Xstrata , said that a lack of "capital discipline" among resources companies had contributed to gluts of major commodities including coal.
"The big guys really screwed up," he said. (Additional reporting by John McGarrity; Editing by David Goodman)