A deadly accident at a coal mine in Inner Mongolia could test China’s ability to supply the fuel necessary for its economic recovery.
(Bloomberg) — A deadly accident at a coal mine in Inner Mongolia could test China’s ability to supply the fuel necessary for its economic recovery.
The collapse at an open-pit mine in the Alxa League region left two dead and over 50 missing, according to local media, in what could prove to be the worst accident of its kind in years. A spate of fatalities at mines in 2021 led to a nationwide safety campaign that disrupted operations and curbed supply, and the latest disaster will bring those efforts back to the fore, Morgan Stanley analysts including Sara Chan said in a note on Thursday.
The severity of the incident prompted a response from President Xi Jinping, who called for an all-out rescue effort and probe into its causes. Local officials have ordered coal mine inspections across Inner Mongolia, China’s No. 2 producing region, according to a statement. The accident has landed at a sensitive time on the political calendar, with the annual National People’s Congress set to begin in the capital on March 5, and safety checks may well be extended to other coal regions.
It also comes just as power demand is showing signs of a sustained recovery after an extended Lunar New Year break and Beijing’s abandonment of its growth-sapping Covid Zero policies. Coal burning at six major coastal power plants has risen 15% since the start of the holiday in late January and is now higher than the corresponding period last year. Buyers who were mostly absent from the market over the winter are now once again hunting for cargoes, according to traders.
Rising consumption of China’s mainstay power source is good news for an economy that’s beginning to sputter into life, with factories and construction sites expected to kick into higher gear in March. But the nation’s dependence on the fuel has also made it vulnerable to shortfalls, which have caused a succession of industrial outages in recent years.
Coal traders are taking their cue from increased industrial activity, including in the steel and cement industries, Xu Dongkun, an analyst with the China Coal Transportation and Distribution Association, said at a briefing on Wednesday.
China’s benchmark price rebounded this week after falling to a one-year low, while the nation’s biggest miner, China Shenhua Energy Co., is offering to pay a premium for coal from other miners to ensure it has enough supply, according to industry news outlet Thermal Coal Group. Chinese importers, too, are starting to scour for more cargoes, said William Wang, managing director of Yeyuan Commodity Pte Ltd., a trading firm in Singapore.
Supply Disruptions
Mining stocks including Shenhua, Yankuang Energy Group Co. and China Coal Energy Co. rose on Thursday after the accident raised the possibility of supply disruptions and higher prices.
Questions remain over how quickly the Chinese economy can put the pandemic behind it, given the weak outlook for exports as growth in the rest of the world slows. At the same time, heating demands on coal are waning as temperatures rise, while Beijing has signaled its intention to add even more capacity to an industry that’s already producing at record levels.
Still, stung by the blackouts that have crippled the economy in the past, the government continues to pressure power plants to ensure they can meet demands. The National Energy Administration on Tuesday called for utilities to strengthen control of their resources to forestall any outages.
After the Alxa League disaster, the coal industry will be waiting to see how the government intends to balance its concerns over energy security with the political imperative of preventing needless deaths.
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On The Wire
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–With assistance from Yvonne Yue Li.
(Updates with local government statement in third paragraph)
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