Figures provided by Reuters and Macquarie had China producing 219.3 million tonnes of raw coal for October, a 9.2% growth from October last year, while coke production fell 21% year over year.

Macquarie’s calculation of an 18.8% growth in raw coal for the Chinese thermal market year over year, or 27.7Mt to 175.4Mt, was made using assumptions that the declining use of coal for coke production would be available for thermal use and that 1.4Mt of coal was used to generate 1Mt of coke with a 70% coking coal yield from raw coal.

Of the extra 18.8% growth in coal for the Chinese thermal market in October, the research division of the investment bank observed it was significantly higher than the 9.2% year-over-year growth for raw coal production.

“It also corresponds with reports from China of severe cuts in coke production and of coking coal washeries idled as their products flow as raw coal into the thermal market,” Macquarie said.

“This growth is flowing predominantly into the domestic market, as it has not yet found an outlet in exports.”

The research division said China was a net importer of 724,000t of thermal coal in October and had been a net exporter of only 5.1Mt of thermal coal for the year to date.

“The veracity of the coal production data may be questionable. For example, some portion of the growth is likely due to under-reporting in 2007, rather than actual growth,” Macquarie said.

“Nonetheless, the disparity between supply and demand is obvious. The Chinese thermal coal market has moved into oversupply as electricity and coke demand collapses yet coal supply continues to grow.”

Macquarie noted that China was a net importer of coking and thermal coal for October largely due to an exhaustion of export licences.

“Given that the Chinese government released a second batch of export licences of 15.9 million tonnes in early November, this factor will be absent through the balance of the year and should allow for more normal export volumes to resume,” Macquarie said.

Domestic supply issues have often been a driver of coal importing circumstances for China, according to Macquarie, with snowstorms triggering blackouts across the nation early this year and a government ban on coal exports through to March.

In its outlook for China’s thermal coal market, Macquarie said major production cuts may be imminent, and the nation’s domestic prices were vulnerable to further declines.

Demand for thermal coal in China has fallen with preliminary data suggesting to Macquarie that China’s electricity generation fell 4% year over year in October, which included a 5.3% drop in thermal generation.

“The biggest concern for the international coal market is whether the Chinese government relaxes export controls in coal in 2009,” Macquarie said.

“At this stage, there is no indication that this will be the case as it would imply a major reversal of its longstanding energy policies.”