By Joshua Leung 

September 7, 2021 - Tight control measures implemented by China's Ministry of Ecology and Environment in the third quarter of 2021 has impacted operations of the metallurgical coal sector, leading to a cut in run rates and spot supply squeeze, sources said Sept. 7.

MEE said that its staff since late August has stayed in Shandong, a key Chinese met coal hub, and would continue to station there until Sept. 26 to conduct safety inspections.

China-based Guosheng Securities in its 2021 sector report said it sees Chinese met coal supply to shrink, citing domestic environment protection and safety rules.

Another factor that is expected to disrupt China's met coal supply is Shandong coal sector being asked to retire 34 million mt/year of old coal output capacity in 2021, according to Guosheng Securities.

Meanwhile, current high met coal prices have spurred the Chinese government to impose strict price controls, capping unreasonable price rises, Kaiyuan Securities said in a latest report.

Domestic prices were seen at Yuan 3,735/mt ($578/mt) on Sept. 1 for premium low-vol hard coking coal in the Shanxi province, up 48.5% from early August, according to S&P Global Platts data.

Domestic prices have been seeing fresh record highs in recent weeks, as local steelmakers were turning to Chinese supply for their requirements amid absence of traditional import sources.

Coal from Australia remains unavailable for China after an unofficial ban in the fourth quarter of 2020, while another major supplier Mongolia is facing issues as renewed concerns over COVID-19 impacts transportation.

Run Rates, Port Stocks Slip

As of Sept. 3, the run-rate of Chinese coking coal producers with an output capacity below 1 million mt/year was 48.29%, down 0.42% on the month, while those with 1 million-2 million/year capacity have been seeing a run rate of 71.49%, down 1.72% on the month, Kaiyuan data showed.

The run-rate of producers with a capacity of over 2 million mt/year was 76.79% as of Sept. 3, down 2.54% on the month, according to Kaiyuan.

Meanwhile, met coal stocks at Rizhao and Qingdao ports in North China fell 129% and 64% on the year, to 420,000 mt and 990,000 mt, respectively, as of Sept. 3, data by Shanghai Ganglian E-commerce Holdings showed.

According to China Coal Industry Association, Chinese met coal hubs are now undergoing sector restructuring, with 17.05 million mt old met coal output capacity in Inner Mongolia to be retired in the next two years.