REFILE-China small coal mines back in action, but cautiously

(Refiles to fix headline)

By Rujun Shen and Tom Miles

SHANGHAI/BEIJING, July 14 (Reuters) - Some of China's small coal mines are returning to production as the country enters the hottest time of the year, releasing some of the tightness in the market caused by efforts to tighten safety by shutting small mines, industry officials and analysts said on Tuesday.

Several provinces' efforts to tighten up and close small operators, often the least efficient and most dangerous coal producers, have tightened China's coal supply this year, a major factor driving China's record imports of coal in recent months, in addition to weaker international prices.

Shanxi, China's top coal producing province, allowed 633 coal mines to return to production in the first half of the year, or a quarter of mines in the province, the Shanxi Administration of Coal Mine Safety said on its website (www.sxsafety.gov.cn)

"Some mines may have reached safety standards and are allowed to produce again. Another important factor is that Shanxi's government revenues have taken a blow after small mines were shut. Fiscal revenues in local governments are running dry," said Wang Ye, an analyst with CITIC Securities.

Wang said Shanxi's coal output in June rose about 10 million tonnes, or 20 percent, to nearly 60 million tonnes.

Last year Shanxi produced 656 million tonnes of coal, up 4 percent from a year earlier, or about 23 percent of the country's total output. Gross domestic production in the first quarter of the year, however, contracted 8.1 percent, compared with a 12.5 percent rise a year earlier, according to official data from the National Bureau of Statistics and Shanxi Province Statistics Bureau. (www.stats-sx.gov.cn)

"Between starving and having their career blown away by a fatal mine accident, local government officials are pretty much between a rock and a hard place," Wang said.

Data due to be released later in the week is expected to show that output in the world's largest producer of the hydrocarbon rose in June, after surging 10 percent on the year to 248 million tonnes in May. [ID:nAPI000629]

Helping boost coal demand, China's power output returned to positive territory in June for the first time in months, up 3.6 percent from a year earlier, as the weather and the economy both began to warm up. [ID:nPEK281077]

A full-blown recovery in small mines' production is unlikely to happen ahead of the 60th anniversary of the establishment of the People's Republic in October, analysts said, since high-profile accidents during such politically sensitive periods would be career bombs for local government officials.

China's coal market is likely to be in balance, or perhaps show a small surplus, through the summer, despite growing demand, analysts and industrial officials said.

"Demand is looking good, thanks to growing industrial activity. Supply is improving as well, not only because of small mines, but also due to high coal imports," said Chen Liang, an analyst with Everbright Securities.

China's coal imports hit record high levels over 9 million tonnes in April and May. Data for June is not yet available, but imports were likely at a similarly high level, traders said.

"We locked our earlier contracts when prices were lower. Those contracts will expire in August. At current price levels, imported coal is no longer competitive in the domestic market," said a Guangdong-based trader. (Editing by Ben Tan)