China's coal production growth to slow in 2023 amid safety checks

China's coal production is expected to slow down for the remainder of 2023 as the central government tightens security checks following a spate of fatal coal mine accidents.

Chinese coal output rose to an all-time high of 4.50 billion metric tons in 2022 after Beijing asked miners to ramp up production to ensure energy security and prevent a repeat of power shortages, data from the National Bureau of Statistics showed.

Last year ended years of decline in mining incidents in China. Accidents jumped 85% year over year to 168 in 2022, and deaths increased by 38% to 245, according to China's National Mine Safety Administration.

So far in 2023, at least 160 miners have died in 57 coal mine accidents as of Sept. 24, according to Cinda Securities. In February, 53 people were killed and six were injured when an open pit coal mine collapsed in Inner Mongolia. Most recently, 16 miners were killed Sept. 24 when a fire broke out at a state-owned coking coal mine operated by Guizhou Panjiang Refined Coal Co. Ltd. in Guizhou province.

The local authorities of top mining provinces Shanxi and Shaanxi were asked to launch safety checks and halt some mining operations, S&P Global Commodity Insights reported in August.

After China ended its campaign to ensure coal supplies in March, the central government shifted focus to mining safety, and more coal mine accidents came to light, Yang Jie, an analyst at coal consultancy Yimei, told Commodity Insights.

At the same time, China's domestic coal consumption lost steam, pushing down prices, due to record imports, weaker-than-expected industrial activity and recovering hydropower generation.

Slowing coal supplies

China's coal production and capacity growth have slowed this year. Coal output rose 3.4% year over year for the first eight months of 2023, compared to an 11% increase in the 2022 period, according to the National Bureau of Statistics.

At the beginning of 2023, local governments set a goal to increase annual coal output by 100 million metric tons to 150 MMt, but production will likely grow slower than expected with the pressure of the safety regulation, Hou Jian, an analyst at the China Coal Transport and Distribution Association, said in a Sept. 20 market briefing.

Amid the safety checks, the capacity utilization rate of top coal mining provinces Shanxi, Shaanxi and Inner Mongolia fell to about 80%, Cinda Securities analysts said in a Sept. 28 note. The three provinces contribute more than 70% of China's coal production, according to the National Bureau of Statistics. The safety regulation is expected to remain tight in the fourth quarter, which will restrict supplies and capacity growth, especially for smaller mines, the Cinda Securities analysts said.

China banned new coal mines with annual capacity below 900,000 metric tons in September, which will directly affect metallurgical coal supplies in the longer term. Most coking coal mines in China are deeply buried with high gas content and small production capacity, Cinda Securities analysts said.

To fulfill coal supply requirements, some private coal mines were running 20%-30% higher than their designed production cap, and some aging mines were reopened, driving up safety risks, Yimei's Yang said.

With safety checks in place, private coal mines have reduced production to within safe levels. But output may pick up again if the central government shifts focus back to energy security to prepare for the winter heating season, Yang said.

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