Jan 17, 2019

Mine accident tipped to tighten Chinese coal output

Mine accident tipped to  tighten Chinese coal output

A serious coal mine accident in Shaanxi province is expected to impact China’s coal output in the next few months, according to analysts from
Wood Mackenzie.

Twenty-one miners were killed in the January 12 roof collapse at the 0.9Mtpa Lijiagou coal mine, owned by Baiji Mining Company.

The incident is expected to trigger safety crackdowns on top of the subsequent short-term periods of suspension of local mining operations.

Below is an abridged version of Wood Mackenzie Senior Consultant Zhai Yu and Wood Mackenzie Coal Supply Associate Nuomin Han’s commentary:

“We understand that all privately owned mines in Shenmu county were forced to suspend operations the day after the accident. We have also heard that mines in adjacent Fugu county – another large coal mining area – may also be subject to suspensions.

“As such, we estimate 50Mtpa of production capacity will be impacted by operations halting at private mines in Shenmu. This could double to 100Mtpa if the mines in Fugu also face suspensions. We do not know how long the suspensions will last, but is likely to be for at least one month.

“The accident will have a greater impact on the market after the Chinese new year”

Although production has been suspended in the region, it will barely worry the market before the holiday period, which is only three weeks away.

Private mines typically stop operating one week before the national holiday. We estimate that mines suspending operation two weeks earlier than normal will lead to a 5Mt reduction in supply. This will have little impact on the Qinhuangdao price in the run-up to the Chinese new year, as falling demand and high inventories will mean buying activity slows down.

However, we believe the reduced supply will have an impact on the coal market after the holiday period. The mine where the accident took place only received its grade 2 safety rating in May 2018 – suggesting flaws in the rating process.

Authorities in Shaanxi have announced they will implement safety checks across the province following the accident. Almost a week earlier, the National Coal Mine Safety Administration had announced the inspection criteria for mines wishing to restart operation.

We believe these new safety checks and the mine restart process after the holiday will be stricter than before – in Shaanxi province at least. This will mean supply will be reduced as demand increases after the holiday for restocking.

Coal output in Shaanxi province could be affected throughout 2019

It is now possible that Shaanxi will implement the strictest-ever regulations on illegal production, which would significantly reduce output in the province for the year. However, metallurgical coal supply will hardly be affected as the Shenmu region mainly produces thermal coal.

If stricter checks are extended to other provinces, domestic supply could tighten from its currently relaxed situation, helping coal imports as a result.”

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