The plunge in coal imports is linked to the continued weakness in China’s Qinhuangdao (QHD) port index for thermal coal (of 5500 kilocalories per kilogram energy value) this year.

However, leading Chinese thermal coal producer Shenhua provided some encouraging views at JP Morgan’s China Summit in Beijing last week.

“[Shenhua] management believes coal prices are set for a recovery into the summer after hitting bottom at RMB400 a tonne [$US64.5/t],” JPM said in client note.

“This will be driven by a fall in social inventories and likely boost from policy stimulus in the second half of 2015.

“Notably, inventories at QHD port have normalized to 6-6.5 million tonnes and inventories at power plants have also improved to historical levels of 18 days.

“For Shenhua itself, its inventory holding have fallen from 5mt to 3mt of late. Shenhua expects any recovery to be seasonally driven given soft demand.”

The broker also commented that China’s coal industry was in distress:

“Shenhua estimates that 90% of the industry are in accounting losses while 60% are in cash losses. Management estimates only 20-30% of coal mines in Ordos (Inner Mongolia) are operating while coal prices at Yulin (Shaanxi) of RMB150-160/t are below cost levels. Management believes that current market conditions are unsustainable and noted that the domestic cost curve continues to be pushed lower given reduced local taxes along with bank financing for salaries.

“Management highlighted that the governments of key coal producing provinces (Shanxi, Inner Mongolia, Shaanxi), China Shenhua and China Coal Energy have met recently to identify and deepen policy measures to help stabilise coal prices.”