Yancoal’s long term rating fell from BB+ to BB- while the $US1 billion ($A1.3 billion) of notes held by the associated Yancoal International Resources Development Company were downgraded from BB+ to BB-.

Fitch also cut its rating on securities issued by Yancoal International Trading from B+ to BB.

The credit rater is expecting Yancoal’s average realised coal sales price to drop by an average of 5% in 2015.

Fitch said the Chinese coal market would continue to be oversupplied for another 2-3 years as new capacity was being added.

“At the same time, coal demand will continue to be sluggish with a slowdown of industrial production and thermal power generation growth,” Fitch said.

“In addition, thermal coal prices in China could come under more pressure after the government recently said it would cut the thermal power on-grid tariff by around 5%.”

Fitch further said there was limited room for more coal savings at Yancoal.

“With most of its cost-cutting options already exploited since 2013, there is unlikely to be further room for meaningful cost reduction,” Fitch said.

Project development was also expected to keep Yancoal’s capital expenditure rates high.

“Fitch expects Yancoal's capex level to remain elevated in the next two years till new projects in Ordos in China and Moolarben in Australia are completed, which would result in continued negative free cash flows,” the credit rater said.