By Kelvin Leong

September 8, 2020 - China's domestic coal supply could face disruptions when authorities conduct week-long safety spot checks on coal mines in at least 11 provinces this month.

China's top three coal producing provinces of Shanxi, Inner Mongolia and Shaanxi are included in the list of provinces where spot checks will be carried out by the country's coal mine safety administration. Coal mines that are deemed to be hazardous or outdated will be shut down. The checks follow a series of mining accidents involving fatalities in Shanxi and Shandong last month.

The move could exacerbate the country's supply shortfall given ongoing import curbs, while coal transportation on the crucial Daqin railway has not yet fully recovered from two recent derailments. The Daqin railway, which transports coal from Shanxi to the country's key coal trans-shipment port of Qinhuangdao, hauled around 1.1mn-1.2mn t/d in recent weeks after the derailments, down from the usual 1.3mn t/d. The railway also scheduled to undergo a 20-25 day maintenance this month that could restrict haulage as operating hours will be reduced.

But the impact of any supply shortfall on coal prices is likely to be cushioned by weak demand. Chinese utilities are now in the shoulder season for spot coal purchases as the country transitions into the cooler autumn period, while winter restocking yet to begin. Daily coal burn data for five of the six coastal utilities are no longer available, but Zhejiang Power's coal burn on September 5 was 116,000 t/d, the lowest since July 26.

Stronger hydropower output following recent heavy rainfall has also dampened coal demand. Typhoon Haishen, the latest in a series of storms to affect China, is expected to make landfall in China's northeast provinces tomorrow. The country's meteorological administration has warned of torrential rainfall in northeast China this week, which could boost hydropower output even further.

Argus last assessed China's domestic NAR 5,500 kcal/kg coal at 558.08 yuan/t fob Qinhuangdao on September 4, up by Yn3.91/t on the week. In dollar terms, the price rose by $1.20/t from the previous week to $81.64/t.