China Launches Safety Checks on Small Coal Mines

By  Li Qiyan

China has launched a new round of nationwide safety inspections on small coal mines that will begin in Mayand run for one and a half years, according to a joint notice issued April 30 by four government agencies.

The campaign, which will be jointly carried out by the National Development and Reform Commission, the State Energy Administration, the State Administration of Work Safety and the State Administration of Coal Mine Safety, will targetsmall mines with anannualproduction capacity of less than 300,000 tons.

The move appears to be aimed at curbing production to stabilize prices.

The announcement has raised concerns over the coal price outlook in the market and is expected to affect the coal price in a short term, an expert at China Electricity Council told Caijing. "With the negotiations between the coal and power industries reaching the final stretch, the news cannot come at a more sensitive time," he said.

After the heating season ended in April, coal producing provinces have limited production to stabilize prices. As a result, inventories were drawn down and prices were steady and firmer.

The coal producers' association sent a report to Ministry of Industry and Information Technology in late April, expressing concerns about over-capacity in the second quarter.

Despite the economic stimulus policies, no visible upturn is seen in coal-consuming industries such as power and steel. The National Development and Reform Commission, in a recent report, also forecasted soft demand and increasing pressure of over-capacity in the second quarter

"From a long-term view, coal prices will depend on supply and demand," said Li Chaolin, a coal analyst with the China Coal Trade and DistributionCenter.  "If demand for coal remains weak, coal prices will not rise sharply even if small coal miners delay resuming production after the safety checks," he added.

China is cracking down on poorly managed, privately run mines in order to reduce the number of accidents in the industry. The nation's pits, the most dangerous in the world, recorded 4,746 fatalities in 2006, accounting for 80 percent of global mining deaths.

China's small mines account for one-third of total output and two-thirds of fatalities, according to the official Xinhua News Agency.

Beijing's goal is to reduce the number of small mines to less than 10,000 by 2010, and to eliminate them entirely by 2015.

The move is expected to bolster coal prices in the short-term, though coal prices will fluctuate according to the rate of economic growth in the long run, analysts say.Coalprices started to fall in the fourth quarter of last year as power and steel producers slashed production, and the demand for coal is yet to recover as heavy industry destocks high inventories and the government's economic stimulus plan begins to take effect.