“This suggests that negotiations for the much more important financial year contracts may be drawn out,” NAB said in its latest Bulk Commodities Update.

NAB said Chinese domestic prices have remained stronger have led to a widening of the arbitrage between domestic and imported prices to its largest level since mid-2012.

Yet the bank reported that spot prices for thermal coal have continued to drift lower, with prices at Newcastle dropped below $US60 a tonne in mid-January – the lowest level since June 2007 – before recovering slightly this month.

China’s imports of thermal coal slowed considerably in 2014. For the full year, imports totalled 229 million tonnes, around 9% lower than 2013.

The bank said lower imports appear to be in line with weaker demand – rather than stronger domestic supply.

Data from the China National Coal Association suggests that domestic output was down around 2.1% year on year over the first 11 months of the year, which NAB said indicated weaker apparent consumption.

“This trend was evident in China’s electricity sector,” NAB said.

“Overall electricity generation rose by 3.2% in 2014 (the slowest rate of growth since 1998), however generation from thermal sources (primarily coal and natural gas, representing around 77% of total generation) fell by 0.4%.”

This was contrasted by strong growth in hydroelectric (18%) and nuclear generation (19%).

Outside China, Japanese imports of coal were also weaker last year. Total coal imports (comprising both thermal and metallurgical coal) fell by 1.7% last year, to total 188 million tonnes.

NAB warned Japanese demand for thermal coal could fall further in 2015, with plans to restart nuclear generation.

“Profitability has become a growing issue for producers over the past two years – as prices have fallen,” NAB said.

According to data from China’s National Bureau of Statistics, the country’s coal mining industry saw profits fall by 46% in 2014, having already fallen 38% in 2013.

China’s economy continues on its gradual transition away from a manufacturing hub towards a modern, consumption based economy.

NAB said one signal of this trend was the increasing share of China’s services sector, averaging 48% of GDP in 2014,up from 47% in 2013. In contrast, the share of secondary industries (manufacturing and construction) fell below 43%.