Although plans to increase infrastructure investment could also lift coal consumption, efforts to shut plants in sprawling power-intensive industries, such as cement, steel and aluminium, could also partly offset any demand growth, they said.
The industry is still in a phase where major producers are cutting costs to displace marginal producers and that will keep driving down coal prices, Laban Yu, an analyst at investment bank Jefferies, said in a note this week.
The market is calling a bottom. We are not, Yu said. Jefferies says prices will not hit bottom for another year.
Pricing pressures have already slowed Chinas coal import growth to less than 14% in the first half of 2013, down from a jump of nearly 30% in the first quarter.
To boost sales and grab market share, top producers Shenhua Energy and China National Coal Group have been cutting their spot thermal coal prices since July.
Chinas spot coal prices have dropped 9.3% since June to hit a four-year low of 546 yuan ($89.19) this week, even though a record hot summer pushed July power consumption growth to its highest this year.
About 10% of Chinas thermal coal producers have a break-even cost of around 500 yuan a tonne, analysts said, giving major miners plenty of room to keep cutting prices.
Shenhua has the lowest production cost in China at about 250 yuan per tonne including taxes, analysts and traders said. China Coals production costs are about 400 yuan a tonne. Shenhua chairman Zhang Xiwu said on Monday that he expected domestic coal prices to continue sliding towards the end of the year due to unfavourable economic conditions.
Low prices have already forced some miners to cut output, with total output in the first seven months down 3.5% on year to 2.13 billion tonnes. But with inventories of around 300 mt piled up across the country, about 11% higher than a year ago, analysts at Nomura have said Chinas output needs to fall 8-10% to restore market balance.