Analysts do not see coal prices rising or spot LNG imports picking up anytime soon as a sluggish domestic recovery from COVID-19 curbs and shrinking exports dampen power demand from manufacturers, which account for about two-thirds of electricity use in the world's No. 2 economy.

"China has gotten used to using less LNG," said Alex Siow, lead Asia gas and LNG analyst at pricing agency ICIS.

The outlook will hurt coal and LNG exporters, as China is the world's biggest coal importer and vies with Japan as the top LNG buyer. The industrial and power sectors account for more than half of the country's gas demand.

"Weak industrial demand is the root cause, with key gas consumers like ceramics and glass makers operating at low rates as they face poor external demand," said a senior Chinese trader, who declined to be named as he is not authorised to speak to media.

He added that some of these plants have cut production by a third versus last year.

The weak outlook for coal and gas demand comes despite meteorologists warning of unseasonally hot weather for June, with temperatures exceeding 37 Celsius (98.6 Fahrenheit) from Beijing to Xinjiang.

Abundant piped gas supply, with some industrial users having agreed in late 2022 to additional purchases from state producers PetroChina and Sinopec, has also cut into spot LNG demand, the trader said.

At the same time, a weakening Chinese yuan has kept many importers on the sidelines, despite LNG prices having slumped to a two-year low around $9 per million British thermal units (mmBtu) from record highs hit last year after Russia's Ukraine invasion.

China's LNG imports in May rose 7.2% from April to 7.7 billion cubic metres (bcm), Refinitiv data showed. While this was higher than May 2022 amid COVID-19 lockdowns, it lagged May 2021 shipments.

"There have been some spot buys, but that is more for trade optimisation," Siow said.

ICIS forecasts China will import 73 million metric tons of LNG this year, up 15% from last year, when soaring prices curbed demand.

Industries that switched to coal when gas prices spiked last year have stayed with it, Siow said, as LNG prices remain uncertain in the near future. Spot LNG prices remain above breakeven levels of $6.50/mmBtu for southern China's power producers.

"We don't think many of these power producers will go out and buy LNG. Instead, they will go out and buy coal," he said.

RECORD-HIGH COAL STOCKS

That coal is cheap, with inventories at all-time highs as China has boosted production while January-May imports almost doubled.

Chinese thermal coal with energy content of 5,500 kilocalories (kcal) traded near two-year lows of around 800 yuan ($112.04) a tonne on Wednesday, trading sources said.

Prices for the same grade from Australia fell to about $90 a tonne on a free-on-board (FOB) basis last week, from $100 a week earlier, according to a China Coal Economic Research Association report.

Stocks at major northern ports hit a record of more than 30 million tonnes last week, 20%-30% higher than 2021-2022, data from the China Coal Transportation and Distribution Association (CCTD) showed.

Inventories may decline, however. Data from consultancy Wind showed daily coal consumption at power plants in eight coastal regions jumped 11% last week from the prior week to 2.06 million tonnes, exceeding levels seen over the previous three years.

However, that hot weather boost could be temporary as forecasters expect more rainfall, which would raise hydropower generation, CCTD analyst Zhang Yupeng told a seminar on Wednesday.

"Coal demand is unlikely to see obvious improvement this summer, especially if industrial consumption stays lukewarm," Zhang said.

Growing imports and domestic output will continue weighing on prices, he said.

($1 = 7.1402 Chinese yuan renminbi)