Market and product

China, the world’s biggest producerand user of coal, is suspending operations at smaller mines in abid to improve safety before the nation’s once-in-a-decadeleadership transition this month.

Ahead of the 18th Party Congress, which begins Nov. 8 inBeijing and runs for at least a week, the State Administrationof Work Safety has sent inspectors to mines to “spot hazards”and accelerate shutdowns over the next month, it said in an Oct.24 statement on its website. The congress is where China’s nextgeneration of leaders will be formally anointed.

Datuhe (Shanxi) Coking & Chemical Co. and Yongning CoalCo., a unit of Yongning Coal & Coking Group, have both hadoperations halted, according to company officials who declinedto be identified because they aren’t authorized to speakpublicly.

The suspensions could affect mines in provinces such asInner Mongolia, Shanxi and Shaanxi, which combined account for60 percent of the nation’s output. China has been working toimprove safety in an industry in which accidents killed 1,973 people last year and 2,433 in 2010, according to the StateAdministration of Work Safety. That compares with 48 deaths in2010 in the U.S., the world’s second-biggest coal producer.

“Improving mining safety is a direction of China’s coalpolicy. The recent fatal accidents highlight the urgency”, said Helen Lau, a Hong Kong-based analyst with UOB-Kay Hian Ltd.“Government officials are severely punished for coal mineaccidents now. So, maintaining social and political stability isimportant in this leadership transition.”

Output Impact

China’s regions, departments and companies should “firmlyprevent big coal mine accidents to create a safe, stable workingenvironment for the opening of the Party Congress,” the worksafety administration said, following a video conference withprovincial officials on Sept 4.

A gas explosion in a coal mine in Inner Mongolia yesterdaytrapped six people, the official Xinhua News Agency reported,citing local authorities.

The temporary closures could affect all non-state ownedmines that account for 47 percent of coal output in Inner Mongolia and 42 percent in Shaanxi, said Chen Yanyan, analystwith independent research company Glinfo.com in Shanghai. InShanxi, it could affect about 30 percent of local output, saidJing Wen, analyst with independent research firm China CoalResource in Taiyuan city, Shanxi province.

“All non-state-owned mines may be suspended even for avery short period. There is no other way to guarantee zeroaccident” during the congress, Chen said.

Mines Shuttered

China’s raw coal production climbed 4.9 percent to 2.57billion tons in the first eight months of the year, according China Coal Resource data. Of that, Inner Mongolia had a 26percent share, Shanxi 24 percent and Shaanxi 10 percent, thedata showed.

The Datuhe sales manager said one of the company’s threecoal mines in Shanxi’s Luliang city was ordered by localgovernment to suspend operations in early September because ofthe congress. Its other two mines are yet to start operating asthey’re being upgraded, he said.

The official at Yongning Coal Co. said its sole mine inShanxi’s Lishi city has been suspended for the congress. BothDatuhe and Yongning are privately owned.

Coking coal, used by the steel industry, traded at 1,000 yuan a metric ton at the factory gate in Shanxi’s Luliang as ofOct. 29, up from a yearly low of 900 yuan on Oct. 8, accordingGlinfo.com data. China’s weekly price for thermal coal used inpower generation was quoted at 635 yuan to 645 yuan a ton as ofOct. 29, up from a range of 625 yuan to 635 yuan a ton on Sept.9, according to the China Coal Transport and DistributionAssociation, which advises the government.

“The latest enforcement of mine closure is much stricterthan before,” said Mu Wenxin, senior analyst with Custeel.com,another independent research firm. “The halt is set to pushcoal prices higher along with seasonal demand fromsteelmakers.”

Improve Safety

A gas explosion on Aug. 29 at Xiaojiawan coal mine inChina’s southwestern province of Sichuan killed 45 people andinjured 54, with one missing, the work safety administrationsaid Sept. 3. Twenty people were killed in a coal mine in Baiyincity, Gansu province, on Sept. 25 after a steel cable that waspulling a locomotive carrying 34 miners in two carriagessnapped.

On Sept. 22, a fire broke out at an underground coal minein Heilongjiang province, leaving 12 dead. The accident promptedthe local government of Shuangyashan city to shut all of its“small” mines for checks, according to the provincialgovernment’s website. These mines are unlikely to restart untilDecember, Glinfo’s Chen said. Heilongjiang makes up 2.4 percentof the nation’s coal output.

Shaanxi province will shut 31 mines in Shenmu and Fugucounties very shortly by revoking their licenses and cuttingtheir power supply, the province’s Bureau of Coal Work Safetysaid Oct. 31 on its website. It is part of a plan to close 100small local mines and cut capacity at more than 200 others overthree years, “Work safety is especially urgent and important asthe party congress will start soon,” the bureau said.

Nationwide, the country plans to shut down about 20,000unlicensed mines by 2015, the official Xinhua News Agencyreported Sept. 19, citing Yang Dongliang, director of the worksafety administration.

Bigger Companies

The suspension of small mines is set to benefit biggercompanies. Shanxi Coking Coal Group Ltd., China’s biggest cokingcoal producer, boosted sales by 31 percent to a record 9.16million tons in September from a year ago, the company said onits website.

“Reduced output by rivals helped the company boostsales,” said Jing at China Coal Resource. Four calls to ShanxiCoking Coal’s general office seeking comment went unanswered.

Yanzhou Coal Mining Co., China’s fourth biggest coalproducer, increased by as much as 4.9 percent today to HK$12.38in Hong Kong, the biggest gain since Oct. 18. It was at HK$12.32as of 10.22 a.m. local time, up 4.4 percent and beating a 1.1percent gain in the benchmark Hang Seng Index.

China Shenhua Energy Co., a unit of the nation’s biggestcoal producer, advanced 1.2 percent to HK$33.75; China Coak Energyy Co., the second largest, climbed 2 percent to HK$8.01.

For coking coal, the larger state-owned producers likeShanxi Coking Coal supply directly to steelmakers includingBaosteel Group Corp. and Anshan Iron & Steel Group. Smallerproducers sell to coking companies which turn the material intocoke for use in steel furnaces.