Beijing takes more measures to raise coal production

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The Chinese government has taken more measures to raise domestic coal supplies to cope with strong summer coal demand and cool prices.

Authorities in Inner Mongolia, China's biggest coal-producing region, have approved land use rights for 38 open-cast mines in Ordos county, which had suspended operations because of limited access to land. The mines, representing a combined coal production capacity 66.7mn t/yr, have resumed operations and are removing overburden in the newly approved areas. The mines are expected to start producing coal in early August and their production may eventually reach 200,000 t/d, national economic planning agency the NDRC said. The NDRC did not specify initial daily production for the mines.

Separately, the NDRC has relaxed conditions for coal mine capacity increases. Mines that apply to increase their capacity before 31 March 2022 are required to only agree to work out a plan to replace "outdated" mines within three months after they receive approvals. This may quicken production increases as mines may be allowed to raise capacity before identifying which old and inefficient mines they will be replacing, unlike previously.

A designated work team from the NDRC recently went to Ordos, a major open-cast mining county in Inner Mongolia, to investigate the potential for production increases. This may signal a harder push for local mines to ramp up output.

Despite government efforts, market participants doubt whether supplies will increase quickly enough to meet peak summer coal demand that normally occurs before late August. Open-cast mines that have recently been granted land use rights will likely gradually ramp up output this month, but other mines that are permitted to raise capacity may still need a few months before they can produce more coal.

Chinese coal burn has rebounded with power demand recovering after Typhoon In-Fa cooled temperatures last week. Utilities also resumed restocking of both domestic and imported coal following typhoon-related disruptions to port operations. Higher temperatures may also keep pushing coal demand higher this month before autumn begins in early September.

Thermal power output, which is mainly based on coal in China, increased to 509TWh in August last year from 460TWh in July 2020, before declining to 422.3TWh last September, according to the National Bureau of Statistics. Output reached 481.3TWh in June this year, up from 450.7TWh in May.

Beijing has been calling repeatedly for coal supply increases to meet robust summer demand. But stringent safety and environmental controls have limited coal supplies, pushing coal prices to historic highs.

Argus last assessed the market for NAR 5,500 kcal/kg coal at 1,079.58 yuan/t ($167.11/t) fob Qinhuangdao on 30 July, the highest since Argus started assessing this market in 2009.

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