The near-term outlook was for a cut of up to $8 a tonne for steaming coal in the 1999 Japanese fiscal year which begins on April 1, said Peter O'Connor, resources research director at Credit Suisse First Boston. O'Connor, who was attending the Coal Forecast '99 conference organised by McCloskey Coal Information Services Ltd, put the likely steaming coal price cut at between $5 and $8 tonne.

However, conference convenor Gerard McCloskey told Reuters that a reduction of about $10 a tonne for coking coal was being discussed privately by participants.

This figure was being mentioned both by Japanese buyers and some Australian producers, McCloskey said.

The downgrade in the 1998/99 outlook comes less than one month before producers and buyers meet in the opening event ofthe negotiating season, the Australia-Japan Coal Conference in Tokyo. The conference is the first shot in annual price and tonnage negotiations for Australian coal exports to Japan, which then have the dominant influence on Asia-wide and worldwide traded coal.

Spot prices for coking coal, a new development in the market, are down to US$36 fob a tonne compared with existing annual contract prices of about US$51 a tonne, McCloskey said.

"Producers feel very vulnerable," he said.

The Australian dollar's slump against the US dollar in the past 12 months has been a bonus for producers, along with stiff payroll cutbacks.

A fall in the Australian dollar to 58 cents from 72 cents in this period represented an increase in returns to Australian producers to A$86.21 a tonne from A$69.44 a tonne, McCloskey said. A combination of positive currency movements and labour cost savings from a 20 per cent workforce reduction meant a gain for Australian producers of about A$22 a tonne, he said.

John Maitland, Nationalsecretary of the Construction Forestry Mining and Energy Union, Australia's main coal mining Union, told the conference that Asian buyers always extracted price cuts from currency movements which favoured Australian producers but did not reciprocate with price increases when currencies moved against the producers. Australian producers would face major problems if the Australian dollar rose, he said.