By Chris Newman and Dylan Wong

September 7, 2021 - Chinese top-tier domestic metallurgical coal prices have extended a record run above the equivalent of $600/t after a fatal accident forced mine shutdowns in the country's largest supply region.

Shanxi province has ordered the 6mn t/yr Wangjialing underground coking coal mine to suspend production for a month to fix safety lapses after a worker was killed in an accident on 2 September. The outage could cut 500,000t of output from the mine in Linfen city in southwest Shanxi. Other mines are also shutting down for safety checks, market participants said.

Prices for low-sulphur premium hard coking coal from the Liulin region of Shanxi province rose by 200 yuan/t ($31/t) to Yn3,900/t ($603/t) for the highest grade. A Liulin mid-vol equivalent spec rose by Yn100/t to Yn3,450/t. Some low-sulphur grade coals in the Changye region of Shanxi are selling at a record high of Yn4,370-4,375/t, or above $675/t without delivery costs.

China produces most of its coking coal needs, with it the product accounting for more than 500mn t of the 3.84bn t coal it mined in 2020. More than 60pc of domestic output comes from Shanxi.

China's coking coal imports fell by 43pc to 26mn t in January-July, slowed by its ban on Australian coal imports since October 2020, limited North American and Russian alternatives and Covid-related shutdowns to the Mongolian border.

Chinese import prices for premium low-vol hard coking coal rose by $5.70/t to $412.35/t cfr today, a new record for the index since it launched in 2010. No premium spot cargoes are available for sale. Some Chinese market participants are expecting prices to peak in a months' time, as coke and steel producers accelerate steel output cuts from November onwards in preparation for the Winter Olympics.

Australian premium hard coking coal prices are below record levels but still rising on the back of a wide arbitrage for ex-China mills to swap out North American coals, burgeoning global steel demand and Queensland supply risks from forecasted La Nina weather conditions for August-October.

Top-tier Australian coking coal prices rose by $3.65/t to $273.65/t today.

The latest incident is the second fatal accident at Wangjialing, after flooding killed 38 workers in 2010. Shanxi province has suspended operations at 22 coal mines that have allegedly breached safety protocols, as a result of a fresh round of safety inspections since the start of this month, following three coal mining accidents in June.

Shanxi, China's biggest coal-producing province behind only Inner Mongolia, produced 314.17mn t of coal last month, down by 3.3pc on the year, according to the national bureau of statistics (NBS).

Efforts by China's top national economic planning agency the NDRC to increase domestic coal production face environmental hurdles. The National Energy Administration said this month it plans to strengthen its oversight of the energy and environmental sectors oversight in response to government criticism. It published a "rectification plan" designed to help it comply more closely with government policy, following criticism from an environment ministry inspection team earlier this year that it was prioritising output growth over emissions reductions.

Chinese domestic thermal coal prices have also soared with its production lagging electricity demand. The Argus NAR 5,500 kcal/kg thermal coal assessment has risen by 102pc from 2021 lows in early March to Yn1,169.44/t ($181.09/t).