China's top coal producing region tells miners to curb overproduction

21st February 2024 By: Reuters

BEIJING - China's top coal-producing region of Shanxi has ordered miners to curb overproduction, according to a notice this week from authorities in the northern province, sparking a rally in coking coal futures on Wednesday.

Coal miners in Shanxi were asked to reduce output and carry out safety checks from March to May, according to the February 19 notice by the provincial emergency management, mine safety and energy bureaus. The province produces 29% of China's coal supply, including thermal coal for power plants and coking coal, a key steelmaking ingredient.

Brokerage China Futures said the order could reduce supply by a combined five-million to six-million metric tons for two major producers, Shanxi Coal International Energy Group and Shanxi Luan Group. Officials at the companies could not immediately be reached for comment.

"The influence might not merely be confined to the two companies, and this is what the market is concerned about," China Futures analysts wrote in a Wednesday note.

The most-actively traded coking coal futures contract DJMcv1 on the Dalian Exchange, a benchmark for China, rose as much as 8% on expectations of tighter supply and ended the session up 6.19%, the highest close since Jan. 31.

The move is aimed in part at curbing mine accidents resulting from overproduction.

"In the past several years most miners in China were running with full capacity and there were a lot of small scale accidents," said Liu Shaoyi, a Xiamen-based coal trader.

"Now overall domestic and international coal supply is sufficient, and Shanxi has enough time and space to manage the coal production safety problems that have occurred in the past, without stimulating the excessive growth of coal prices."

The China Coal Industry Association said in late November that accidents in 2023 had increased by 53% compared to all of 2022. The increase prompted a notice from China's cabinet that safety checks would be ramped up.

China's coal output rose to a record high of 4.66-billion tons last year amid an ongoing focus on energy security, with around 1.36-billion tons from Shanxi, according to statistics bureau data.