China's renewal of its carbon reduction targets, as well as reports that it is clamping down on coal production, has led analysts to turn bearish on the outlook for coal, claiming that peak demand for the fossil-fuel could be behind us.
Coal is used to generate 40 percent of the world's electricity, and its use has grown more than 50 percent in the past decade, according to the U.S. Energy Information Administration. But the fossil-fuel is well-known for its detrimental environmental impact, causing air pollution and carbon dioxide emissions that are strongly linked to global warming.
China is responsible for 47 percent of global coal consumption—almost as much as the rest of the world combined, according to the International Energy Agency, and became a net importer in 2009.
However, the new political regime in China, and its focus on a more consumer-led economy could bring change.
"The world has become addicted to China's demand for coal," Paolo Coghe, European power, coal and carbon analyst at Societe Generale told CNBC. He warned that if the Chinese economy was slowing down, China could become a net exporter of coal, which would be very negative for prices.
"Peak coal demand could be happening now, but we will have to see what happens next year. The effects will be seen in the next 3-5 years," Coghe said.
This July, China renewed its 2005 goal to cut its carbon usage by 40-45 percent by 2020. Meanwhile, the U.S. government has signaled it will stop funding coal projects abroad as part of its foreign-aid spending, and the World Bank and the European Investment Bank have done the same.
"The window for thermal coal investment is closing," the commodities research team at Goldman Sachs, headed by Christian Lelong, said in a note on July 24. The bank downgraded its price forecasts for thermal coal, which is primarily used to generate heat, to US$83 per ton in 2014 and US$85/t in 2015, citing environmental regulations, competition from gas and renewable energy, and improvements in energy efficiency.
The August futures price of thermal coal at Australia's Newcastle port, a regional benchmark for Asia, has fallen 17 percent this year, and closed near $78 a ton last week, its lowest in almost four years. The price is now 43 percent below its post-2008 recession high of $139.05 a ton, struck in January 2011.
Coghe, whose price targets are similar Goldman Sachs's, said mines might cut production if coal prices are hit.
"This could hurt Australia," he told CNBC, explaining that Australia had found economic success in supplying coal to a rapidly expanding China, but should have restricted production and investment in coal sooner.
He added that the "only hope" for Australia's coal industry was in exporting to India.