China Suspends Coal Mines for Congress, Boosting Prices

China, the world’s biggest producer and user of coal, is suspending operations at smaller mines in a bid to improve safety before the nation’s once-in-a-decade leadership transition this month.

Ahead of the 18th Party Congress, which begins Nov. 8 in Beijing and runs for at least a week, the State Administration of 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 next generation of leaders will be formally anointed.

Datuhe (Shanxi) Coking & Chemical Co. and Yongning Coal Co., a unit of Yongning Coal & Coking Group, have both had operations halted, according to company officials who declined to be identified because they aren’t authorized to speak publicly.

The suspensions could affect mines in provinces such as Inner Mongolia, Shanxi and Shaanxi, which combined account for 60 percent of the nation’s output. China has been working to improve safety in an industry in which accidents killed 1,973 people last year and 2,433 in 2010, according to the State Administration of Work Safety. That compares with 48 deaths in 2010 in the U.S., the world’s second-biggest coal producer.

“Improving mining safety is a direction of China’s coal policy. 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 mine accidents now. So, maintaining social and political stability is important in this leadership transition.”

Output Impact

China’s regions, departments and companies should “firmly prevent big coal mine accidents to create a safe, stable working environment for the opening of the Party Congress,” the work safety administration said, following a video conference with provincial officials on Sept 4.

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

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

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

Mines Shuttered

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

The Datuhe sales manager said one of the company’s three coal mines in Shanxi’s Luliang city was ordered by local government to suspend operations in early September because of the congress. Its other two mines are yet to start operating as they’re being upgraded, he said.

The official at Yongning Coal Co. said its sole mine in Shanxi’s Lishi city has been suspended for the congress. Both Datuhe 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 of Oct. 29, up from a yearly low of 900 yuan on Oct. 8, according Glinfo.com data. China’s weekly price for thermal coal used in power generation was quoted at 635 yuan to 645 yuan a ton as of Oct. 29, up from a range of 625 yuan to 635 yuan a ton on Sept. 9, according to the China Coal Transport and Distribution Association, which advises the government.

“The latest enforcement of mine closure is much stricter than before,” said Mu Wenxin, senior analyst with Custeel.com, another independent research firm. “The halt is set to push coal prices higher along with seasonal demand from steelmakers.”

Improve Safety

A gas explosion on Aug. 29 at Xiaojiawan coal mine in China’s southwestern province of Sichuan killed 45 people and injured 54, with one missing, the work safety administration said Sept. 3. Twenty people were killed in a coal mine in Baiyin city, Gansu province, on Sept. 25 after a steel cable that was pulling a locomotive carrying 34 miners in two carriages snapped.

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

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

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

Bigger Companies

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

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

Yanzhou Coal Mining Co. (1171), China’s fourth biggest coal producer, increased by 4.1 percent, its biggest closing gain since Sept. 14, to HK$12.28 in Hong Kong, beating a 1.3 percent gain in the benchmark Hang Seng Index.

China Shenhua Energy Co. (1088), a unit of the nation’s biggest coal producer, advanced 1.1 percent to HK$33.70; China Coal Energy Co. (1898), the second largest, climbed 2.2 percent to HK$8.02.

For coking coal, the larger state-owned producers like Shanxi Coking Coal supply directly to steelmakers including Baosteel Group Corp. and Anshan Iron & Steel Group. Smaller producers sell to coking companies which turn the material into coke for use in steel furnaces.

To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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