The yen's rally, coupled with a further slide in the metal's prices on the London Metal Exchange (LME), may also force Japanese copper smelters to cut production in the new business year starting in April, they said.

"We don't know what to do with such a strong yen. It's a disaster. It will further endanger the economy in general," said a copper trader.

"Should things deteriorate further, we will see negative growth (in copper demand) for the whole of 1999, even if things started to improve in the second half," he added.

The dollar fell below 111 yen on Tuesday before bouncing back above 112 yen by early afternoon trade in Tokyo on Wednesday. At the end of December it was trading around 115 yen.

Reflecting worries over the Japanese economy, the Tokyo stock market's key Nikkei averageslumped for two days in a row before recovering some ground on Wednesday.

"Things are very tough," said another trader at one of Japan's top copper smelters. "There may be some (copper) production cuts in the next fiscal year. At present, there's nothing that suggests a pickup (in copper demand) in the second half."

Towards the end of last year, copper traders predicted Japanese copper demand would stabilise during the first half and rebound in the second half, which would keep the total for 1999 little changed at around 1.30 million tonnes.

In the absence of Chinese spot purchases at present, prospects for copper exports are not rosy either, though cuts in 1999 premiums of about $5 per tonne helped boost term commitments to east Asian buyers, including Taiwan, traders said.

"I doubt our (copper) exports will reach 300,000 tonnes this year," the trader at the smelter said.

"We managed to increase term contracts. In Taiwan, they probably rose to around 130,000-140,000 tonnes from around 70,000-80,000tonnes last year. But we haven't seen Chinese enquiries since November or December."

Official statistics showed Japanese copper exports in November stood at 23,335 tonnes, boosting the total for the first 11 months of last year to 267,031 tonnes, compared with 183,957 tonnes for the whole of 1997.

Yet only 1,500 tonnes were shipped to China in November, compared with the peak of 8,120 tonnes in March. Cumulative exports to China in the 11 months to November amounted to 26,024 tonnes.

Traders said dim economic prospects in Japan and abroad, the strong yen, LME copper prices near lows last seen in 1987 and cuts in treatment and refining charges (TC/RCs), might prompt Japanese smelters to wind down plant operations in the business year starting in April.

Though they are unlikely to announce any production cuts before the new fiscal year begins in April, traders said their talks with some foreign mines over 1999 TC/RCs also remained deadlocked, despite deals struck with the Ok Tedi and Grasberg mines inDecember. "It's a question of time. But copper concentrate talks have not made much progress," said another industry source, who added there had been differences of opinion on the evaluation of concentrate grades and the general approach to TC/RCs.