By intern reporter Wang Su and staff reporter Li Qiyan

China’s coal industry is facing oversupply risks as demand falls in the face of high production levels.

At a recent conference, coal industry associations urged producers to put the clamps on output, noting that coal stockpiles were growing as customer demand shrinks in the steel, coking and construction industries.

Shanxi Coking Group Co. Ltd. released a forecast that predicted declining demand for coal and electricity as the steel industry weakens. Coal production may be cut by 300 million to 500 million tons next year, the forecast said, from the expected industrywide output of 2.7 billion tons this year.

The coal-dependent coking industry is threatened by slumping demand from real estate developers, shipbuilders and steelmakers. Coke production this year is expected to decline 10 percent from last year’s level to 300 million tons. The Coking Industry Association also said China’s coke production declined 13 percent in September from August.

Meanwhile, mounting losses for steel companies forced steelmakers to cut output in October, according to the China Iron and Steel Industry Association. As a result, the nation’s steel production is expected to total 500 million tons in 2008 – about the same as last year – and decline next year.

The China Coal Transportation & Sale Society said coal mine stockpiling increased sharply in late October in Shanxi Province, a major coal region, due to declining demand. Spot prices for coal at major ports have fallen below prices set by the government.

But at the same time, coal production has remained high. Mines plan to boost capacity and increase production volume over the next two years.

Shenhua Group, China’s largest coal producer, said earlier that demand for high quality coal may remain stable next year, but that low quality coal will face mounting pressure.

Industry associations are calling for more government policy support, including relaxed credit control, incentives for the shipbuilding industry, and energy price reform.

And some industry insiders remain optimistic. Huainan Mining Industry Group said a government stimulus plan announced recently aims to keep China’s GDP growth at 8 percent or above, which in turn should prevent a steep falloff in energy and coal demand.

The coking association predicted that the stimulus plan would start having an impact on the economy in March.