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China’s thermal coal futures contract surged 6% on Monday, fuelled by concerns over supply tightness following a series of government crackdowns on illegal mining in the country’s top coal producing region.
The most-active Zhengzhou thermal coal futures contract for January delivery CZCcv1 last traded at 727.2 yuan ($114.29) a tonne at the close at 0700 GMT, marking its biggest daily gain since Nov. 3.
The scramble to buy came as the National Mine Safety Administration’s Shanxi bureau rolled out a round of inspections to crack down on illegal mining and urged miners in the region to remain “strictly” within authorised production capacity limits.
A dozen mines, including some operated by China’s No. 8 coal producer Jinneng Group, have been found by the Shanxi authority to be churning out coal beyond their approved capacity.
The watchdog said in a statement on Sunday that Jinneng Group had made a blanket order “to increase output regardless of safety conditions, and cancelled all annual and monthly maintenance plans for coal mines”.
It said at least 14 other coal mines had been producing beyond their authorised capacity, and demanded two of them, with 900,000 tonnes of annual capacity each, shut down.
Coal prices hit a record high in mid-October after the national mine safety authority rolled out probes into illicit mining across the country.
Beijing subsequently stepped in to tame runaway prices by approving hundreds of extensions to coal mining capacity and encouraging producers to step up output.
Prices have more than halved from their peak as output hit its highest since at least March 2015 in October. It is expected to have maintained that level in November.
The Shanxi watchdog said in the Sunday statement it will continue its crackdown on illegal mining.
“(The mine suspensions and inspections) are currently the key factor (driving coal prices), though there is no way to say how long the suspensions will go on for,” said a Shanghai-based trader.
Mining safety inspections are typically stringent ahead of big national celebrations, and are expected to be further tightened during the Beijing Winter Olympics, which kicks off in early February.