March 6, 2019 - Supply of domestic coal is expected to tighten further as authorities in China's northwestern province had ordered open-pit mines to shut down, market sources said Wednesday.

According to a document recently released by local authorities in Shenmu and Fugu, counties in Shaanxi's Yulin city, all open-pit coal mines will have to be shut by end of this year.

This is to "win the battle in cleaning up the environment and protecting the ecology, as well as solving the problem of illegal resource mining," the document said.

The document also detailed timeline for the actions, including extinguishing the fire by end of March, land reclamation by end of September, and to ensure proper work closure by end-November.

"These open mines are like ticking time bombs, we won't know when there will be safety problems surfacing, so the authorities are taking bold steps on this," a China-based market source said.

Market sources estimate around 130 million mt of production will be affected by the shut mines.

The directives come amid ongoing safety checks at mines in Shaanxi and Inner Mongolia after two mine accidents occurred in January and February.

The stringent mine checks along with import curbs on Australian coal had pushed prices of domestic thermal coal higher.

Market sources expect the latest announcements to cause supply to tighten further in the coming months and likely to benefit imported coal of other origin, including coal from Indonesia and Russia.

S&P Global Platts had assessed China's domestic 5,500 kcal/kg NAR grade of coal at Yuan 635/mt FOB Qinhuangdao Tuesday, 9.5% higher from the January 2 assessment of Yuan 580/mt FOB.