Lennon referred to the safety targets that would affect China’s coking coal production, as presented at the conference by China Coal Transportation and Distribution Association director David Fang.

Lennon said 40% of China’s coking coal came from Shanxi Province and 60% from small, underground coal mines.

According to Fang, Shanxi coal production for the year was expected to shed 17 million tonnes from 2008 production, to 640Mt.

Lennon added the province would have zero growth in coal supply for the next three years while phasing out the small and dangerous mines in the region.

Fang revealed that 36% of China’s coal output last year came from small, privately owned mines, but these accounted for only 12% of production by the end of March due to government efforts to close down small mines in Shanxi, Henan and Shaanxi provinces.

“According to Shanxi government regulations, the minimum single mine pit annual production capacity needs to rise from 300 kilotonnes per annum to 900Ktpa by 2011 and single coal producers’ annual capacity must exceed 3 million tonnes in order to stay in operation,” Lennon said.

“The number of coal mines in China that need to be closed is 1000 by 2011.”

On the other hand, thermal coal production from the Chinese region of Inner Mongolia has lifted.

Digesting the national statistics, Lennon said Inner Mongolia’s coal production had jumped 28.4% year-on-year for the first quarter compared to 5.2% for China overall.

China is advancing with its efforts to overhaul the national coal supply chain, with about 5000km of new railway lines expected to be added in the 2009-2011 period, Lennon said.

Macquarie is estimating about 30% of the new railway capacity will be used for transporting coal.

“According to our discussion with the Railway Bureau, Chinese railway capacity for coal delivery will reach 1.8 billion tonnes per annum by 2010, compared with 1.5Btpa in 2008,” Lennon said.

“According to the central government plan, by 2020 Chinese railway transportation facilities for coal delivery will reach 2.3Btpa.”

The analyst said the five major Chinese power companies had about 16 days worth of thermal coal inventory – 28Mt – at the end of March.

He said the China Coal Transportation and Distribution Association expected demand for the commodity to be up only 1% for 2009.