News: UPDATE 1-South32 scraps $200 mln Australian coal acquisition from Peabody

(Corrects bullet point 2, paragraphs 4, 7 to show decision to end deal was South32's not ACCC's)

• Peabody coal sale in Australia collapses
• South32 kills $200 mln sale to Peabody
• Peabody says will still run the mine

MELBOURNE, April 18 (Reuters) - South32 Ltd on Tuesday killed a $200 million deal to buy Peabody Energy's Metropolitan coal mine in Australia after running into competition concerns about supply of coal to local steel makers.

South32, which had been pursuing its first major acquisition since being spun off by global miner BHP Billiton (BHP), said it was unwilling to take the steps required to appease Australian steel makers to get the deal over the line.

"To proceed with the acquisition, in light of the anticipated concessions, would have compromised the merits of the transaction and this is not something we are prepared to do," South32 Chief Executive Graham Kerr said in a statement.

The decision by South 32 to abandon the deal underscores concerns voiced by steel makers that too much of Australia’s massive coking coal reserves rest in the hands of a small handful of big miners, including BHP, Mitsui <8031.T> and Anglo American

If the deal went through, South32 would have become the only large supplier of coking coal to the eastern Illawarra steelmaking hub, a market position opposed by Australia's biggest steel company, BlueScope Steel Ltd (BSL)

Steel producers are facing some of the highest raw materials costs in years as prices for coking coal as high as $300 a tonne remain well above last year's levels.

South 32's decision also comes just as Peabody has emerged from bankruptcy.

Peabody in a statement said it was surprised that South32 and Australia's competition watchdog had reached an impasse over the acquisition.

"On the other hand, we see continuing opportunities given Metropolitan's quality coking coals and port location, and our objective will be to operate the mine while maximizing returns in the international marketplace," Peabody President Glenn Kellow said in a statement.

Peabody said it would keep the 2 million tonnes a year coking coal mine and its 16.67 percent stake in the Port Kembla coal terminal and would resume shipments after completing a move to a new coal panel in the mine at the end of May.