A rapidly slowing demand for thermal coal in China has prompted predictions its consumption will peak within two years.

The Institute for Energy Economics and Financial Analysis says it is bad news for the New South Wales coal industry which has pegged much of its hopes for continuing growth on rising demand in China.

Relying on figures from China’s electricity sector, the group says imports are at their slowest rate of growth in decades.

Director Tim Buckley says China is diversifying its energy mix and moving away from coal.

“Whilst coal is still 66 per cent of the total generating capacity of China, the Chinese Government has made it very clear for a large number of reasons that they want to diversify their electricity mix, so that they have a lot more nuclear, a lot more hydro, a lot more wind, a lot more solar and a lot more energy efficiency,” he said.

Mr Buckley, says while the growth rate for demand is reducing, coal production in NSW is increasing.

He says the coal industry and NSW Government need to understand the implications of the data.

“We only just saw last week the NSW Planning authority recommend the expansion of the Newcastle coal port,” he said.

“Port’s only operating at 70 per cent utilisation.

“We need to critically analyse the demand outlook and understand what our biggest trading partner is doing, before we go and commit billions of dollars for new investment, which would only just flood the market and push the price down even further.”