China Coal-High prices, safety fears push mine consolidation

SHANGHAI, March 21 (Reuters) - High coal prices may expedite a consolidation of small mines in China, as local governments seek tighter control of the highly profitable resource, analysts said.

Small mines contributed 38 percent of China's coal output in 2007, according to the State Administration of Work Safety, although they have been blamed for the sector's notoriously poor safety record.

Beijing has been pushing forward a safety drive for the past few years, forcing small mines to close or sell out to larger companies.

High coal prices have made mines more alluring as a source of revenue for local governments, which are likely to force small mines to sell out to larger state-owned firms, said analysts.

"Local governments would want to concentrate the resource in state-owned enterprises that they control," said a Shanghai-based analyst at a large securities trading firm.

Domestic spot coal prices hit record highs in early February, after the harshest winter weather in decades disrupted coal transportation, and helped to trigger severe coal and power shortages.

Prices have since been easing with the start of spring and a decline in demand for heating.

Benchmark spot coal prices at Qinhuangdao, China's top coal port, for top-grade thermal coal edged down 5 yuan on the week, trading between 635 and 645 yuan ($90.07-$91.49) a tonne, still 32 percent higher than a year earlier.

"If prices were lower, consolidation would be a lot slower," said Henry Liu, an analyst at Macquarie.

"Now local governments are highly motivated."

With the end of last month's Lunar New Year holiday and this month's annual parliamentary session -- a politically sensitive period, small mines are returning to normal production, boosting coal supplies but prompting safety concerns.

Coal stocks at Qinhuangdao were at 7.45 million tonnes on Friday morning, about 72 percent higher than after the Lunar New Year holiday. Coal stocks for export stood at 637,000 tonnes, according to www.cqcoal.com, a market information Web site operated by an industry venture.

But the increase came at a heavy cost to coal workers.

Seventy percent of 16 coal mine accidents during the week after the Lunar New Year holiday occurred at mines that were resuming operation, the Web site of the State Administration of Work Safety (www.chinasafety.gov.cn) said.

The safety watchdog has asked local governments to help more than 13,000 mines that had closed shop during the Lunar New Year holiday to resume production safely, while preventing mines that had been shut down for safety reasons from resuming operations. "If we aren't prudent about resuming production, accidents will be the price we pay," said the Web site.

Analysts said that consolidation led by local governments could help to improve the safety record of the industry.

"If such consolidation goes well, mines will be safer and better managed, bringing down the death toll," Macquarie's Liu said. ($1=7.050 Yuan) (Editing by Edmund Klamann)