Mining accident in China threatens coal supplies

A coal mining accident in southwest China that resulted in 16 fatalities could pressure authorities to intensify ongoing safety inspections, potentially supporting coal prices by tightening supplies ahead of the peak demand winter heating season.

Excessive carbon monoxide at a coal mine located in Chongqing city trapped 17 workers yesterday, with only one survivor. The accident occurred at around the same time that China's national coal mine safety administration announced that two mines in the coal-producing heartland of Shaanxi province were in breach of safety regulations discovered during the ongoing inspections.

The latest accident may potentially encourage authorities to further step up safety inspections in the coal sector, curtailing supply as utilities begin winter restocking, typically in October. Import restrictions have pushed Chinese coal consumers to rely more on domestic output in recent months.

Coal stockpiles at the country's main transshipment port of Qinhuangdao have stayed at around 5mn t/d for nearly a month, far below the typical average of 6mn-7mn t/d during last year's winter-restocking season.

Scheduled maintenance on the major coal-transporting Daqin railway from 7-31 October is expected to exacerbate the supply shortfall by limiting coal deliveries to Qinhuangdao.

Parts of northeast China could face a coal shortage of as much as 37mn t this coming winter, some market participants said. Although China's domestic coal production in August showed signs of recovering after being hampered by a lengthy corruption probe in Inner Mongolia, there are concerns that the recovery may not be in time for the upcoming winter demand season.

The potential supply shortfall has prompted market talk that Beijing is possibly considering easing import restrictions by clearing some stockpiled imported coal at a few southern Chinese ports, but this cannot be confirmed.

Argus assessed Chinese domestic NAR 5,500 kcal/kg coal prices at 596.25 yuan/t ($87.40/t) fob Qinhuangdao port on 25 September, up by Yn11.67/t from the previous week. The price was $87.53/t in dollar terms, up by $1.04/t on the week.

By Kelvin Leong