January 19, 2019 - China's domestic thermal coal prices are likely to come under close watch in coming weeks as the country strives to keep prices of essential goods stable during the Lunar New Year holiday period in February and key annual political meetings in March.

The country's top planner National Development and Reform Commission issued a notice on Thursday requesting departments in all regions "effectively ensure stable supply and prices of important goods during the Spring Festival of 2019 and the 'two sessions'."

The Spring Festival or Lunar New Year holiday falls on February 4-10 this year, with industrial activity typically winding down around a week or two before that.

The "two sessions" are the annual parliamentary meeting of the national legislature National People's Congress and the top political advisory body Chinese People's Political Consultative Conference that are held in Beijing each year in early March.

The NDRC notice specified scrutiny of transport and supermarket costs, but market sources said thermal coal prices would also be closely watched.

"During the 'two sessions' the government will always want to ensure everything is stable and that includes thermal coal prices," a trader said.

However market sources expect domestic thermal coal prices to increase after the Lunar New Year holiday after a fatal coal mine accident on Saturday in Shaanxi saw more than 70% of mines in the province shut for safety inspections, sparking concerns of a looming supply shortage.

The safety checks have also been extended to Shanxi and Inner Mongolia in recent days, industry sources said.

The inspections are expected to continue until after the "two sessions" in March to ensure the meetings are not overshadowed by major incidents, the sources said.

"This is especially so as this year marks the 70th anniversary of the founding of new China," said a trader in China.

Buying Interest Lukewarm

Thermal coal offers from domestic miners rose as much as Yuan 50/mt this week in the wake of the Shaanxi accident. However prices at Qinhuangdao port edged up only Yuan 5/mt over the same period, which sources attributed to lukewarm buying interest stemming from warmer-than-average weather that resulted in a drop in coal consumption by power utilities.

Coal stockpiles held by power utilities are currently high at the equivalent of almost nearly 19 days of coal burn, market sources said.

The average coal consumption at China's six main power generators was 742,400 mt/day Thursday, down 4.6% from a week ago, according to S&P Global Platts data.

However, a seasonal surge in demand after the Lunar New Year holidays could dash official efforts to keep thermal coal prices at a reasonable level, market sources said.

Authorities in late 2016 announced they were aiming to keep the price of the 5,500 kcal/kg NAR grade of coal in the range of Yuan 500-570/mt.

China's domestic 5,500 kcal/kg NAR grade of coal was assessed at Yuan 590/mt FOB Thursday, up Yuan 10/mt since the start of the year, Platts data showed.

In a bid to stabilize prices, the NDRC instructed Chinese power utilities late last year to negotiate longer term supply deals with domestic thermal coal producers.

Market sources said it is too early to tell how authorities would react if there was a price surge, as the increase in port prices has been mild so far.

"We'll have to see how much the price increase will be [after the holidays]; we haven't see any sign of intervention yet," a market analyst said.

"Even if prices go up to above Yuan 600/mt, it should still be an acceptable level for the NDRC," a China-based trader said, adding that the second quarter was typically a low season for thermal coal.

Other market sources said restrictions on imports could be relaxed in the event of a severe coal shortage.

Some Chinese buyers have turned to the seaborne market since Saturday's accident, pushing up import prices in recent days.

"Buyers are starting to look at imports to balance out the risk, especially if the checks are prolonged," said a trader in China.

The appreciation of the yuan against the dollar and falling freight rates this week were also boosting interest in imported cargoes, another trader in China said.