A 10 per cent price cut for iron ore would follow an 18per cent price cut already imposed by the Japanese steel mills on Australian coking coal as Japan's recession-hit steel production falls away. Variations in Australia's coal and iron ore export prices to Japan, set in private annual negotiations, are a major influence on the Australian economy and its currency. Australian producers, mid-way between unsuccessful December talks and the new round scheduled to open in Tokyo around January 11, on Wednesday declined to discuss price cut demands because of the sensitivity of negotiations. But analysts said that price cuts of 10 per cent now appeared inevitable.

This represents a deterioration of price expectations by some analysts, who a couple of months ago formed preliminary views of a price cut of four per cent to six per cent. Now a price cut ofless than seven per cent would be seen as positive by the equities market, one analyst said on Wednesday.

A price cut of seven per cent to 10 per cent was in line with latest market expectations, while price cuts of more than 10 per cent would be disappointing, he said.

Australian coking coal producers were earlier this month forced to accept an 18 per cent price cut for exports to the Japanese steel mills in Japanese fiscal year 1999/2000. This was at the top of market expectations. A spokesman for Broken Hill Pty Co Ltd's iron ore operations and a spokeswoman for Rio Tinto plc/Ltd-owned Hamersley Iron Ore on Wednesday both declined to comment, cited company policy of not commenting during sensitive negotiations.

The BHP spokesman did point out, however, that settlements were mostly struck in January but that negotiations sometimes continued past April. Officials with North Ltd-owned Robe River, Australia's third iron ore producer, were not available. Iron ore negotiations re-start in Tokyo in the weekof January 11, with Hamersley meeting with the Japanese steel mills on January 11, BHP and Brazilian producer Cia Vale do Rio Doce (CVRD) on January 12 and North on January 13.

State-owned CVRD is the largest iron ore producer in the world. Australian and Brazilian iron ore compete for market share in Japan. Steam coal negotiations also begin in Tokyo in the new year between Australian producers and Japan's electricity producers. Australian steaming coal producers say expected price cuts are likely to be less deep than for coking coal. Australian coal and iron ore exports form the biggest block of Australian commodity exports and are worth a total of almost A$15 billion a year, with Japan the major buyer. Coking coal and iron ore are both sold to the Japanese steel mills. Japanese crude steel production is forecast to remain depressed in 1999 at around 95 million tonnes after falling by about 10 million tonnes in 1998.