The supply tightness in China's domestic thermal coal market may continue in the near term despite the central government's push to boost production.
China has kicked off an across-the-board safety inspection targeting all coal mines in the wake of several fatal accidents recently, which last through to the end of next year. Data showed there have been more than 100 coal mining accidents so far this year.
The safety campaign focuses on coal mining infrastructure, risk prevention management for major disasters, and capabilities for emergency response and recuse, according to a statement issued by the State Council on November 17.
Unlike Australia and Indonesia, where there are a lot of opencast pits, most coal mines in China needs to work hundreds meters or more than 1 kilometer under the ground, which brings high safety hazards and adds mining costs. Yet human factor is nonetheless a major culprit as well.
Overproduction, used to be half-hidden in the industry, made a big contribution to the overall supply, but this year, the coal mine safety administration has strengthened the crackdown on this wrongdoing, partly leading to a supply shortage across the country.
The latest safety campaign made it clear that inspectors will crack down on miners operating beyond their approved capacity.
In fact, local government has already taken measures since several fatal accidents happened in the past two months. The latest official data showed China produced 336.63 million tonnes of coal in October, up 1.4% from a year ago, but it declined by 0.9% against September.
Under mounting safety pressure, coal production is less likely to increase much in the near term. This could further worsen the supply situation at northern ports, where coal stocks are still at a low level despite efforts to push up transports by railway departments.
Therefore, the domestic thermal coal prices could be very likely to remain above 600 yuan/t FOB for 5,500 Kcal/kg NAR coal for quite a long time to come.
(Writing by Alex Guo Editing by Tammy Yang)
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