Utilities will need more coal imports as mines close
LONDON (Reuters) - British utilities will become more reliant on imported coal after two large domestic producers complete mine closures announced on Thursday.
Power generators including E.ON UK and Scottish Power (IBE.MC) will have to look to countries such as Colombia, Russia and the United States to make up the shortfall in production from the mines being closed by UK Coal UKC.L and Scottish Coal.
The closures will result in the loss of more than 1,000 jobs - about a sixth of the workforce in a once-mighty industry.
Demand for coal in British power stations is expected to fall by half to about 28 million tonnes by 2016 because of tougher environmental controls, but dwindling production at home means that imports are likely to increase by 70 percent from current levels, traders said.
UK Coal, which produces coal for about 5 percent of the electricity generated in Britain, confirmed that it would close its Daw Mill mine in Warwickshire with the loss of 540 jobs. Daw Mill had capacity of 1.6 million tonnes a year capacity
A fire that erupted on February 22 is still burning ferociously, the company said, making the loss-making colliery even less financially viable.
Daw Mill is a major supplier to E.ON UK's Ratcliffe power station in central England.
"E.ON buys its coal from many different sources, so the closure of Daw Mill won't have a major impact on its power generation. It is likely to increase imports from all major suppliers to Britain," one analyst said.
Scottish Coal, which supplies about 3.5 million tonnes of coal a year, said that it would close some of its oldest mines, mainly because of weak international prices.
The company, which is part of Scottish Resources Group, blamed competition from cheap imports from the United States, where lower gas prices have helped to displace coal on the international market.
Current coal swaps prices of around $95 a tonne for 2014 delivery are about 30 percent below where they traded two years ago, meaning that producers are grappling with slowing demand in major markets and oversupply.
"Coal still consistently provides between 40 percent and 50 percent of the UK's electricity needs and demand remains high. However, Scottish-mined coal is priced in relation to global pricing trends, which have been at record low levels," Scottish Coal said.
The company did say that some of the production cutbacks would be temporary as it expects coal prices to improve later this year, which would make some new opencast mines commercially viable.
Though the company did not disclose how many miners would lose their jobs, the National Union of Mineworkers (NUM) said that 450 would be cut by the middle of the year.
The NUM said much of Scottish Coal's production is burnt at Longannet, one of Europe's biggest fossil fuel-fired power stations, which is owned by Scottish Power.
The future of Britain's coal mining industry, which in the 1980s employed more than 100,000 people, has looked increasingly bleak as mines and producers struggle to stave off bankruptcy.
Relatively high labour costs, compared with foreign producers, have made deep-shaft mining increasingly unprofitable, underground deposits are dwindling and surface mines are hobbled by expensive fuel and rising prices of rail freight.
(Editing by David Goodman)
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