Macquarie said producers China Coal and Shenhua had both reported stronger-than-expected demand so far this year, with power consumption expected to rise 14% year-on-year versus 2010.
The companies also reported little evidence of a slowdown in demand from energy-intensive industries such as aluminum and steel-making, despite "the noise on power rationing in China over the summer."
"China Coal believes the coal markets will remain tight for the next two to three years if railway infrastructure bottlenecks still exist and China fails to manage its GDP reliance on heavy industry development. As a result, thermal coal prices are likely to stay high in the medium term," the report said.
Meanwhile, strong demand coupled with railway bottlenecks mean more imports will be required to fill the gap in Chinese coal supply. However, Macquarie noted that thermal coal imports in 2011 had fallen by almost a third versus the same period in 2010, due to higher prices on the seaborne market resulting from Australian supply losses in early 2011.
"We believe Chinese thermal coal imports will rebound from May onwards as a result of a price surge in China since early April, along with [power plants] restocking ahead of the summer and lower than expected hydropower supply this year," Macquarie said.
According to the report, China Coal World expects 2011 production in Shanxi province to return to its previous 2008 peak of an estimated 800 million mt/year. However, production in Henan province will most likely fall, as a result of safety inspections within the area.
Meanwhile, in the coking coal market, Macquarie reported that Mongolia Mining expects conditions to remain tight, with projections that Mongolian raw coal exports to China will hit 70 million mt by 2015, compared with 16.6 million mt in 2010.
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