Many major Japanese smelters recently lowered their earnings forecasts for the year to March 31 and analysts see the business outlook for 1999-2000 remaining gloomy.

"The dollar has been weaker against the yen and may remain sofor 1999/2000 at around 120 yen on average, compared with an average of 128 yen in 1998-99," said Atsushi Murata, an analyst at Daiwa Institute of Research.

When the yen appreciates, it lowers dollar-based treatment charges and refining charges (TC/RCs) paid by foreign miners to Japanese smelters to process their concentrates into refined metal.

Murata estimates if the dollar falls one yen, it will trim annual parent pre-tax operating profits at five major smelters, ranging from a drop of 150 million yen at Dowa Mining Company to a fall of 350 million yen atSumitomo Metal Mining Company.

In addition, TC/RCs for copper set for 1999 between Japanese smelters and foreign mines were 25-30 per cent lower than a year earlier, analysts said.

Japan's metal industry chief admits that smelters, already braced for poor 1998-1999 earnings, expect the tough business environment for the next financial year.

"Taking into account the current (weak demand) environment surrounding our major customers such as the steel, construction and home appliance sectors, smelters' 1999-2000 earnings are likely to be severe," Shimpei Miyamura, chairman of the Japan Mining Industry Association, said.

Japan's crude steel output for 1999-2000 is expected to be 89 million tonnes, down from an initial forecast of 91 million tonnes, Akira Chihaya, chairman of the Japan Iron and Steel Federation, said last week.

The revised forecast was Japan's lowest since 1971, when output stood at 88.44 million tonnes.

The sources said 1998-99 output was estimated at 91 million tonnes.

"In thefiscal, Japan's smelting business will worsen to a level where metal companies face difficulty posting profits," said Atsushi Yamaguchi, an analyst at Jardine Fleming Securities (Asia) said. "Lower smelting charges, a stronger yen and lower import tariffs will all hurt their earnings."

From January, 1999, Japan lowered import tariffs on copper, zinc and lead. While many major Japanese smelters have diversified into other businesses such as producing electronic materials, some also face poor earnings from their non-smelting businesses, analysts said.

Mitsui Mining and Smelting Company and Sumitomo Metal Mining are exceptions as their non-smelting businesses are expected to make up for declines in profits from smelting operations, Daiwa's Murata said.