Datong, China's key coal bub in northern province of Shanxi, decided to suspend coal production at 20 mines for safety concerns from May 12 until the end of the "Two Sessions", according to documents issued by local coal mine safety administration.
This year's two sessions - China's most important annual political event – will be postponed to late May in Beijing.
The term "Two Sessions" refers to the annual full session of the National People's Congress, which customarily begins on March 5, and the annual plenary session of the National Committee of the Chinese People's Political Consultative Conference, which should be open on March 3.
It's learned that a full shutdown was required at the 20 coal mines, involving in a total capacity of 66.15 million tonnes. In theory, the move will bring a total supply reduction of 4.5 million tonnes.
Mao Jun, analyst of Jiangsu Jinying Capital Management Company, said as the "Two Sessions" draw nearer, security scrutiny has strengthened to prevent mining accidents. And the shutdown is to respond production cut asked by the central government, which plans to push coal prices up back to the "green zone".
Mao added the shutdown has a limited impact on the overall supply, but some market narratives regard it as a signal to further support coal prices.
Data of sxcoal.com showed CCI 5500 index, a gauge of the benchmark 5,500 Kcal/kg NAR thermal coal traded at northern ports, reached 470 yuan/t on May 11, picking up by 1 yuan/t on the day. This was the first time that the figure has increased since February 13. The gauge extended the increase by 3 yuan/t on May 12.
Prices at production areas remained on the decline, as demand from power plants and other inland buyers have been exhausted in advance. Many buyers dramatically restocked before the road tolls were reinstated on May 6 to avoid transport cost increase.
As of May 11, Shanxi 5,500 Kcal/kg NAR coal declined 3 yuan/t day on yay to 320 yuan/t, and 32 yuan/t lower than a month ago.
While it won't have a substantial impact on supply, the production halt, however, may bring a certain boost to the depressed sentiment and help the local market to level off.
(Writing by Alex Guo Editing by Tammy Yang)
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