China issues flood precautions to coal producers

Chinese mine safety authorities have issued flood precautions to coal producers as the country enters its rainy season. This is likely to curtail coal output further at a time when the prospect of tighter supplies during the high-demand summer season has pushed Beijing to repeatedly call for producers to raise output.

Although hydropower usually increases over the rainy season that starts typically in June, excessive water levels may result in hydropower stations suspending operations, as was the case last year along parts of the Yangtze river. Disruptions to hydropower could sustain demand for thermal generation.

China's national mine safety administration recently issued a flood precaution, warning that rain-inducing typhoons may make landfall in the country more frequently than in previous years. It noted that rainfall in north China may be especially heavy, although parts of south and east China are likely to also experience serious flooding. Most of China's coal mines are located in the northern provinces.

The administration cited recent flooding incidents at coal mines in Xinjiang and Shanxi as a reminder to the sector. It also said that the expected stormy weather may cause electricity outages at coal mines, which have resulted in accidents in recent years.

Coal mines are to send warning signals to neighbouring mines as soon as any weather-related hazard is detected, so that workers are able to evacuate in time, the administration said. This may result in more frequent disruptions to coal production.

Coal shortfalls compounded

The flood precautions may derail efforts by Chinese premier Li Keqiang to encourage a production ramp-up in the face of looming shortages as the country grapples with rapidly rising summer consumption and difficulties in securing sufficient seaborne coal.

The impact of coal supply shortfalls in China may be more pronounced by the final quarter of the year when hydropower output typically declines because of the onset of drier weather, while winter heating demand rises. This may in turn support seaborne coal prices.

China imported 17.39mn t of thermal coal in April, according to customs data, down by 27.5pc on the year. The country's importers have struggled to procure seaborne coal after China banned Australian coal last year. Many non-Australian producers have raised prices significantly to take advantage of the reduced competition.

By Kelvin Leong