Reuters reported last week that HSBC's Flash Purchasing Managers' Index, the earliest indicator of China's industrial activity, fell back to 48.1 from February's four-month high of 49.6. An index level of less than 50 indicates a contraction in industrial purchasing within the country.The new orders sub-index, the biggest of the five components comprising the PMI, fell to 46.2 and weighed most heavily upon the overall index. The contraction in demand was also visible in the Australian dollar as its value fell. The drop represents a decline in outlook for the country's coal and iron ore industries, which are heavily linked to Chinese industrial and export markets. Australia's government recently reported that it believes average contract prices for coking coal could fall by as much as 23 percent this year, hitting a low of US $221/ton amid weaker import demand and an increase in output from Australia. Thermal coal China's demand for imported thermal coal is expected to increase by four percent in 2012, but the increase represents a slowing from growth in 2011. Wider uncertainty about economic growth in the Asia-Pacific basin has left many traders on the sidelines as they await the upcoming settlement of contracts between Australian coal miners and Japanese power utilities before providing any serious price cues for the coming months. An Asia-Pacific market participant told Platts last week that he felt the inactivity in trading was caused by Australian coal producers not wanting to be seen discounting any coal while talks to reach a price for Newcastle 6,000 kcal/kg NAR shipments to Japan are still ongoing. "Until prices are settled in Japan, the market will probably stay pretty flat," he said. Platts has currently assessed Newcastle 5,500 kcal/kg NAR thermal coal, a benchmark for the region and much of the world, for delivery during March 27 to May 4 as up US $0.15 at $93.25/MT.