Coal prices set to stay low on mainland China for next 12 months

Mainland coal prices are expected to stay low for at least the next 12 months after a protracted slump, weighed down by weak demand, environmental constraints, domestic oversupply and rising imports.

While further downside is limited as leading domestic miners cut back on output to prevent prices from sinking to loss-making levels, according to some analysts, a meaningful recovery is some way off.

Analysts at ANZ last month slashed their forecast for this year's average seaborne power-station coal by 4 per cent to US$74 a tonne, next year's by 7 per cent to US$78 and that of 2016 by 11 per cent to US$82, saying "coal markets are awash with coal at a time of soft demand".

"But falling new mine investment [in Australia and Indonesia] should mean tighter supply and better prices in 2016 and 2017," it said in a research report.

The two nations account for most of the mainland's coal imports, which, although accounting for only 9 per cent of consumption, has grown robustly in the past few years.

Australia has ramped up supply because some miners who committed to costly rail and port facilities built during the commodity boom in 2010 and 2011 are stuck with high payments, and were forced to keep raising output even with prices falling in order to spread the high fixed costs over high sales volume, ANZ said.