- China’s coking coal output drops amid strict safety inspections
- High inventories, weak demand keep prices under pressure
Mysteel Global: A sharp uptick in China’s coking coal futures on June 4 broke through the long-standing tranquility of the market, alongside growing expectations that coking coal availability would shrink with a clear slowdown of domestic coal production.
Frequent accidents incur output cuts
There were market talks that coal mines in North China’s Shanxi – the country’s largest coal-producing hub – were facing mounting safety check pressures from local authorities due to a string of mine accidents since late May. Market participants anticipated that stricter safety checks in the region could put a lid on local coal supply.
Specifically, four coal mines in Taiyuan, Lvliang, Yuncheng and Shuozhou cities were ordered to halt production immediately for rectifications following fatal incidents that claimed four lives over May 28-June 2, Mysteel learned from market sources.
Of these, Meijin Mine, Fujiayan Mine and Wangjialing Mine are coking coal mines, whose combined production capacity reaches 10.5 million tonnes per year, so their suspension alone has removed an estimated 32,000 tonnes/day of raw coal supply from the market, according to Mysteel’s latest survey.
Mysteel Global also observed a clear reduction in domestic coking coal output last month, with this trend becoming more obvious from mid-May. Mysteel’s tracking on the 523 Chinese coking coal mines showed their average operating rate had slid to 84.7% during the week of May 29-June 4, and their raw coal output declined by 122,000 tonnes or 6% over the past four weeks.
Tighter checks to slow price retreats
Beyond Shanxi, additional mine accidents were reported in southwest China’s Sichuan, northwest China’s Gansu, Northwest China’s Xinjiang and Shaanxi, claiming a total of 10 lives in the past few weeks. The most recent, in Shaanxi on June 6, involved a mine with a 12 million t/y capacity now suspended, Mysteel Global noted.
The frequent occurrence of mine accidents lately has lifted the possibility for tighter safety checks across coal mines in the country in the near term, sources warned.
The accident-incurred stoppages at mines, coupled with strict inspections in June – a typical month for production safety in China – will likely slow the declining pace of domestic coking coal prices temporarily, some industry insiders predicted.
Prices continue losing steam
Despite the production suspensions at some mines, market fundamentals for coking coal remain weak, as severe accumulations of coking coal inventories piled at mines continue to weigh on prices, Mysteel observes.
For example, total coal stockpiles, including raw coal and processed coal, at the 523 Chinese coking coal mines that Mysteel monitors notched a record high of 11.52 million tonnes as of June 4, swelling by 88.2% from a year earlier.
By June 6, Mysteel’s assessment of the national composite coking coal price moved lower to Yuan 979.5/tonne ($136/t) including the 13% VAT, only Yuan 8/t away from a historical low recorded in August 2020.
Production cuts may be short-lived
Since the first half of last year – when strict overproduction checks hit hard on coking coal production in Shanxi – regulatory checks for mine safety had been relatively loose in China. Therefore, some sources believed that most mines could resume production relatively quickly after the accidents, exerting limited disruption on coal supply.
Additionally, some participants were doubting whether June virtually means output reductions. National Bureau of Statistics data from 2020-2024 shows that, apart from a minor 0.95% on-month dip in June 2021, China’s coal output rose by 1.2% to 5.6% on month in other Junes.
Several sources disclosed that large state-owned mines — which typically undergo interim evaluations for both coal production and sales — may strive to meet their relatively easier production targets. This will likely delay any potential output cuts among these mines.
Moreover, the majority of Chinese coal mines haven’t suffered losses in cash flows so far, suggesting their limited motivation to slash production, Mysteel learned. For example, the cost for raw coal production is even below Yuan 300/t for some mines in northwestern China’s Shaanxi province, and Linfen and Lvliang cities of Shanxi, while that for some Hebei-based mines was higher than Yuan 1,000/t.
The analysis of Mysteel’s latest survey indicates that among the 40 mines that initiated output cuts or halts in May, with annual capacity combined at 77.5 million tonnes, around 15 mines cited geological constraints as the main reason, and 13 mines reported their straits in sales or dealing with stock pileups. By contrast, only 4% of these capacities were idled temporarily due to the widening losses.
As long as a widespread supply shrinkage remains unlikely in the country, the domestic coking coal market could continue to set new lows, survey respondents said.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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