China's thermal coal demand is likely to fall once the world's longest ultra-high voltage transmission line is completed by the Asian country, market sources said Thursday.

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China has launched its 3,324-km long transmission line that connects the coal-rich Xinjiang province in western China to Anhui province in the country's east, Xinhua News Agency, China's official news agency, reported Tuesday.

Once completed, the transmission line is expected to reduce Chinese coal usage by about 30 million mt/y, according to the report.

"In the past, it was difficult to transport coal out of Xinjiang, so the impact of Xinjiang coal production [on China's overall demand] had been minimal," an east China-based coal analyst said.

"Now, with the direct power transmission, it's equivalent to adding a stable supply to the market. In addition, Xinjiang coal prices are much cheaper [than other regions]," he added.

About 66 billion kWh of electricity a year will be transmitted from Xinjiang to east China with a voltage of 1,100 kv upon completion, Xinhua reported.

"Demand for thermal coal from coal-fired power plants in east China will fall further [with the launch of the new line]," an east China-based trader said.

The line, once fully operational, will not only affect the demand for imported thermal coal, but also pressure domestic coal prices, the coal-analyst added.

"It's not announced when it will be fully ready, probably another six months to a year," the analyst said.

Thermal coal demand remained subdued amid uncertainties over the country's import policy as it reined in import volume.

China imported about 281 million mt of thermal coal in 2018, and produced 3.55 billion mt, according to government data.

Market sources added that besides lower summer temperatures, weak Chinese demand for thermal coal this year is also due to higher electricity delivery from existing inter-regional power transmission grid systems.

Electricity delivered across China from January to May was up 12% year on year, while power generated from coal-fired power plants was up 0.2% from last year, according to a report from the China Electricity Council.

Nuclear and hydro power generation was up 24.3% and 12.8%, respectively, over the same period, data from the report showed.

--Hui Min Lee, hui.min.lee@spglobal.com

--Edited by Kshitiz Goliya, kshitizgoliya@spglobal.com