The report was released as Australian coal producers and Japanese buyers fired the opening shots in the 1999-2000 negotiating round at meetings in Sydney.

Closed sessions of the Australia-Japan iron ore and coal conferences are being held in Sydney last week after routine open sessions of the Australia-Japan Business Co-operation Committee meetings in Melbourne. "Coal negotiations are always difficult to predict and this year they have the added overlay of the Asian crisis," Were said in a Commodities Focus report.

"This year JB Were forecast that there will be some real doomsday scenarios developed during the lead-up to negotiation and this may scare the equity market," it said.

"Claims like $10.00 off hard coking coalprices are sure to be heard, but ultimately the outcome will not be as bad as the claims made in the lead-up," it said.

Were forecasts that hard coking coal prices will be cut by $2.70, or five per cent, while steaming coal will receive a $3.15 a tonne price cut, or 8.4 per cent. It also predicts that iron ore prices will be cut by about six per cent for fines and lumps.

"In the approach to the annual negotiations for iron ore, the odds remain stacked against the miners," Were said.

"The sharp decline in Japanese industrial production and crude steel output and the prospect of further substantial cutbacks to Japanese hot metal production, during a period of rising over-supply of steel, will exert downward pressure on iron ore pricing at the forthcoming negotiations," it said.

Renewed weakness in the Australian dollar versus the US dollar would make the Japanese even more aggressive in their push for lower US dollar terms, Were said.

On coal, a A$10 billion a year export industry for Australia, Weresaid the market continued to be hit by a strong supply side and weakening demand from Asia.

This had put great pressure on spot pricing and contract volumes, it said.

"The only general agreement on the price outlook is that the price will go down in US dollar terms," it said.

Were's price predictions put it at the more optimistic end of the scale of analysts whose views of the looming price cut for coking and steaming coal range up to $10 a tonne, or 20 per cent for coking coal, but are concentrated in the $5-$8 range.

Predictions of price cuts facing Australian iron ore are scarcer than for coal, but Were's forecast six percent price reduction puts it at the more pessimistic end of the range.

Year-to-date coking coal exports from Australia were four per cent down to Japan, 3.8 per cent down to India, 4.8 per cent down to Taiwan and 3.2 percent down to total Asia, Were said.

This was ahead of any slowdown in the Asian crude steel industry, where Asian production was down 1.4 per cent so far incalendar 1998, Were said.

The broker also said that the market downturn held some potential for Australian coal producers to gain market share because of its status as the highest quality producer in the world.

Low freight rates of A$8 a tonne, half the level in recent years, was also helping Australian producers sell to Europe, where exports had risen by 11.1 percent in 1998, it said.

Coking coal spot prices had fallen as low as $40 a tonne and whether contract prices would follow to this extent "remains to be seen", Were said.

Thermal coal prices remained under intense pressure as an excess of supply weighed down the market, it said.