China coking coal prices up as mines shut for Games

By Rujun Shen

SHANGHAI, May 19 (Reuters) - Coking coal prices in Shanxi province, China's top producing area, continued surging in recent days as small mines are being shut in a safety campaign ahead of the Olympic Games, while strong steel production has kept demand brisk.

Traders and industry officials said prices of prime coking coal rose 15 percent in the past few days, or 200 yuan, to 1,500 yuan ($215) a tonne in parts of Shanxi. They have nearly doubled from 800-900 yuan at the beginning of the year.

"Coking coal supply is extremely tight," said a trader in the province, adding that prices in the Luliang region, where he is based and which produces high-quality coking coal, had risen by two-thirds this year.

"Buyers have to pay cash up front to get shipments."

More than half of the country's coking coal is produced by small and medium-sized mines, which have been blamed for China's deadly mine safety record.

Beijing launched a hundred-day campaign of safety inspections in late April in the mining, railway and construction sectors. It is expected to further tighten safety controls as the Olympics approach.

"The government will enact tougher measures for small coking coal mines, which will further tighten supplies," said an analyst at a large state-owned securities firm, who declined to be named.

On the international market, the benchmark price for the fiscal year starting on April 1 jumped to $300 a tonne, more than doubling from a year earlier.

Such high prices have made imports undesirable, analysts and traders said.

"There is no solution to ease the coking coal shortage as far as we can see, so prices will continue to climb," said Lu Ping, an analyst with China Merchants Securities.

The continuous climb in coking coal prices has been forcing coke makers to raise prices.

"Coking coal prices have gone up 200 yuan here. We have to raise coke prices by at least 200 yuan," said an executive at a small coke producing company in Shanxi, who asked not to be named.

The executive also said that his plant would close shop from late June until the end of the Olympics, as part of the government's campaign to improve Beijing's air quality for the Games.

Steel mills, which use coke as a key ingredient, may raise steel prices to offset higher costs, analysts said.

"A 60 yuan (per tonne) rise in steel prices, for instance, would be enough to offset a 100 yuan rise in the coking coal price," said Lu of China Merchants Securities, adding that steel prices were unlikely to rise significantly. ($1=6.977 Yuan) (Editing by Edmund Klamann)