Coal inventories rise at the port of Qinhuangdao, Hebei province. The rising stockpiles indicate that downstream users at steel mills, cement factories and coal-fired power plants are reluctant to purchase fuel because of weak market conditions. [China Daily]

China's drive to transform its economy, which includes reducing the role of energy-intensive industries and paring steel capacity, is driving up coal inventories at key ports as demand across a variety of sectors weakens.

Inventories at Qinhuangdao in Hebei province, the largest coal port in China, exceeded what's widely viewed as the warning line of 8 million metric tons on Feb 6, which was a 10-month high, according to the China Coal Transportation and Distribution Association.

The rising stockpiles indicate that downstream users at steel mills, cement factories and coal-fired power plants are reluctant to purchase fuel because of weak market conditions.

Xing Lei, a professor at the Institute of China Coal Economy at the Central University of Finance and Economics, said the coal market will be weak all year as policymakers pursue a slower-growing but "more stable" economy.

Xing said inventories at Qinhuangdao usually hover around 6 million tons, but the figure has been rising in the past few months.

In the past three weeks, the figure soared almost 2 million tons, reaching 8.28 million tons on Sunday.

Inventories are also rising at the other three major coal ports in North China - Caofeidian and Jingtang (both in Hebei province) and the municipality of Tianjin.

Inventories at the four major ports in North China totaled 22 million tons by the end of last week, according to the association.

"Weak downstream demand is the reason for the rising stockpiles, and the situation will continue for a while, which will exert pressure on market prices for thermal coal," said Liu Dongna, a coal analyst with consultancy Sublime China Information Co.

Coal producers have cut prices in an attempt to attract buyers.

Shenhua Group Corp Ltd, the nation's largest producer of the fuel, cut standard thermal coal prices by 12 yuan ($1.98) a ton to 602 yuan a ton in late January, its second price cut this year.

According to the China National Coal Association, the industry had a total loss of 40.55 billion yuan for the first 11 months of 2013.

"Coal producers are facing a situation even worse than last year," said Liu.

She said environmental issues have been a longstanding problem for the coal industry.

The government continues to pursue policies to rein in energy-intensive industries, which are all big coal buyers, to cut emissions and save energy.

To reduce air pollution, the central government has set a target of eliminating 80 million tons of steel capacity within five years, which will lead to a reduction of coal consumption, said Xing.

Given that coal fuels so many industries, weak demand for the fuel also portends a slowing economy.

"The overall demand will stay huge, but the high growth rates for coal consumption are over," he said.

"The only exception may be if the weather turns extremely cold this year. It might be a driver for coal use. Otherwise, the coal market will continue to experience excessive supply this year with low prices."

He forecast that domestic coal consumption this year will be flat with 2013, staying at 3.6 billion tons to 3.7 billion tons.