China Coal-High prices, safety fears push mine consolidation

By Rujun Shen

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.