Euro Coal-Physical prices bid higher, fire shuts UK largest mine

LONDON: Physical coal prices were bid higher on Monday as Britain's largest colliery was shut after a major fire, which will force its customers to import more, while bomb attacks at a strike-hit Colombian mine added to supply concerns.

European coal for delivery into Amsterdam/Rotterdam/Antwerp (DES ARA) in March was bid at $89.65 on Monday compared with Friday's close of $88.25, data from brokers showed.

South African cargoes traded at $85.25, with coal for March delivery trading at $86.50, down around 25 cents from Tuesday, however.

"In theory, prices should have gained today because quite a large chunk of coal burnt in Britain will need to replaced by imports if the Daw Mill mine fails to reopen, while attacks at Cerrejon is further unsettling news from a major exporter," said one trader with a bank.

"But in practice there is plenty of coal around and demand is fairly weak," the trader added.

Britain's largest coal mine, Daw Mill, could close around a year earlier than owner UK Coal had planned after a fire on Friday forced it to shut for up to six months, which could become permanent, the company said.

The colliery, which had a production capacity of around 1.5 million tonnes a year, supplies E.ON UK's Ratcliffe coal-fired power station, and the utility is likely to need to replace most of that amount with imports, an analyst said.

Traders said Britain's coal-fired power stations were unlikely to panic, because domestic stockpiles of coal and inventories in continental Europe are sufficiently high to offset the short-term impact of the closure.

E.ON is likely to buy more coal from Colombia and Russia, both major producers of the low-sulphur coal that is similar to the type produced at Britain's largest mine.

Colombia's output, however, has slumped by 100,000 tonnes a day since the first week of February because of a strike at Cerrejon, the country's largest exporter.

Management and union leaders at Cerrejon were scheduled to meet on Monday in talks that could hasten a return to official negotiations over wages.

But the bombing of four mining trucks owned by Cerrejon, blamed on left-wing guerrillas, has added to a sense that a resolution might not be near, the trader said.

Also a government export ban on a mine owned by US miner Drummond, imposed because of an environmental investigation, prompted the company late last week to cut output by up to 50,000 tonnes a day after it ran out of space to stockpile coal.

API2 Coal swaps for 2014 delivery traded at $98.30, down $0.40 from Friday's close in response to a big fall in German power prices.

Baseload German power for 2014 delivery stood at 41.95 euros ($55.44) per megawatt hour, down from 42.68 euros at the close on Friday in view of a 10 percent fall in carbon prices.