Consensus seems to be the settlements, due to be finalised in the next few weeks, will fall from the current $115/t to around $95/t.
"As soon as it falls below $100/t you will lose a big chunk of production out of Australia," the producer said. "It will no longer be cost efficient for a lot of mines to hold on. They have been hanging in there and still producing because of their take-or-pay agreements, but under $100 and they are out of the money altogether."
Another producer told Energy Publishing thermal producers across Australia are "holding their breath" for the settlements and more than a few are resigned to the fact they will more than likely need to suspend production.
"You can't just keep producing coal at a loss hoping for the market to turn," he said. "Everyone keeps talking about the market picking up in six months, but they have been saying that for well over a year now and I can't see any substantial price recovery before early next year. Even then, there would need to be supply disruption for that to be the case."
And this is what has Japanese buyers nervous as well.
"We know that if the price falls too much, some production will stop and that is just going to push prices back up," a Japanese buyer told Energy Publishing. "We want the price to drop for these settlements but we also want there to be some stability so it is a tight game. We are also nervous about what will happen with the prices this time."