A collapsed coal mine which left 21 people dead in the Shaanxi province of China could force the country to increase its coal imports as the production is shut down in two counties.
Coal mining has been suspended for at least a month in all private mines that are located in Shenmu county where the roof collapsed at the 0.9 million tonnes per year Lijiagou coal mine.
Analysts at Wood Mackenzie said that the shutdown in one of the top coal regions of China will reduce the output by approximately 50 million tonnes per year.
Meanwhile, nearby Fugu county may also halt its coal mining, leaving another 50 million tonne hole in the output of the country.
The news could force China to venture overseas to keep its coal plants fired up and could be a benefit for other coal producers in Asia.
A Singapore-based research analyst for Marex Spectron, Hui Heng Tan, stated: “I would expect this to give imports a further lift in the short term. Although China has been issuing new coal capacity, with more efficient lines coming online in 2019, I would not think this production loss will be recouped elsewhere in the short term.”
He added: “In the short term imports will continue to be up. But I expect this to be a temporary phenomenon and authorities will be keen to get production back up [in the affected areas].”
He continued: “This would be very bullish for Indonesian coal, which is one of China’s key suppliers.”
Wood Mackenzie said that the price of Qinhuangdao 5500 coal had already been falling for a week before the accident. It levelled off on the 14th of January, the first trading day following the roof collapse.
Meanwhile, the prices in Fugu and Shenmu have increased by around 10 to 50 yuan.
The analysts at Wood Mackenzie stated: “The accident will have a greater impact on the market after the Chinese new year. Although production has been suspended in the region, it will barely worry the market before the holiday period, which is only three weeks away. Private mines typically stop operating one week before the national holiday.”
More than 20 miners were killed in the Lijiagou mine less than a year after it was given a grade 2 safety rating. Wood Mackenzie said that the accident suggests flaws in the process.
Mines that want to reopen after the new year will be required to go through new inspections.