* 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
By Henning Gloystein
LONDON, March 6 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
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
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