A prominent energy analyst says a slump in sales for China's biggest coal company should raise alarm bells for Australian producers.

China Shenhua Energy Company supplies around 16 per cent of China's coal.

Its latest annual report showed that it cut coal sales last year by 10 per cent and is forecasting another 10 per cent (47 million tonne) reduction in 2015 to 404 million tonnes.

Energy analyst Tim Buckley from anti-coal think tank The Institute for Energy Economics and Financial Analysis (IEEFA) said the cuts to Shenhua's sales reflect China's attempt to reduce its energy intensity and coal dependence in order to reduce pollution.

"China's strategy has been to slow the rate of economic growth, transition to lower energy intensive industries, deliver energy efficiency gains and then, as well, diversify rapidly into alternative sources of electricity generation such as hydro, wind, nuclear gas and solar, and then coal, by definition, becomes the rump of electricity supply," he told ABC News Online.

The former equities analyst - who had around two decades of experience with brokers Citi and Shaw before his current role - said you could try and put a positive spin on Shenhua's result, arguing that cuts in Chinese production would need to be made up for by increased imports from major exporting countries such as Australia.

However, Mr Buckley believes the cuts to Chinese demand are so great that imports will be heavily affected.

"Shenhua in the first two months of 2015 has cut its imports of coal to zero, so they were down 100 per cent year-on-year in the first two months of this year," he said.

"So they're clearly saying we think the market for thermal coal in China is shrinking, we going to obviously make the import sector wear the brunt of the pain but, to the extent that the rate of change is even faster than we're expecting, they have to cut back on their domestic production as well."

Thermal coal outlook 'a lot bleaker' than iron ore

While much of the media focus has been on tumbling iron ore and gas prices over the past year, Mr Buckley said thermal coal is probably in a much worse position.

Prices for Newcastle coal have steadily, but steeply, fallen from over $US137.60 in early 2011 to just $US56.55 last Friday.

Newcastle thermal coal prices, $US/mt ( Bloomberg )

While the price fall in iron ore is due to surging output and stagnant demand, Mr Buckley said the coal used in power stations is facing rising output and falling demand.

"I see the Chinese electricity market moving as fast as it can away from coal, that is a permanent strategic shift, that structural decline of thermal coal," Mr Buckley argued.

"So I would see the outlook for thermal coal is actually a lot bleaker than it is for iron ore and at least BHP and Rio are making 30, 40, 50 per cent gross profit margins [on iron ore], I don't think anyone in the coal industry could claim anywhere near that level of profitability, most of them are operating at close to cashflow break-even."

Sorry, this audio has expired Energy analyst Tim Buckley warns coal faces rapid structural decline

Mr Buckley warned that Indian coal demand is likely to start matching, or exceeding, China's declines.

"The energy minister has made it pretty clear in India that sees that India's thermal coal imports could potentially go to zero within two to three years," he cautioned.

"I think that should be ringing massive alarm bells for the Australian export coal industry. They should be re-evaluating every assumption that they have made in the past, because the world is changing very, very rapidly and it's not in Australia's favour."

Mr Buckley said it does not bode well for assets like Whitehaven Coal's Maules Creek project, Shenhua's own possible Watermark project on New South Wales' Liverpool Plains and yet to be developed projects in central Queensland's Galilee Basin.

"They are stranded assets in the making, and the definition of stranded assets are assets that will not deliver the economic returns that were forecast and required to justify the initial investment made in those projects," he concluded.