Citi Group Global Markets analysts said further reduction in the 38c per litre diesel fuel rebate in tonight’s budget, beyond the flagged 32c as part of the carbon tax package, would put pressure on the margins of the two companies which were selling into a coal market where prices had been softening.

Citi said the profitability of coal miners could be affected by between 10% and 20% if the rebate was axed.

The two companies, which recently failed to attract acceptable offshore buyers because of the regulatory and tax environment, are significant coal producers that have operations with high diesel usage in New South Wales and Queensland.

Diesel forms a significant portion of Whitehaven’s operating costs, which had risen in the half year ending December 2011.

Operating costs for the half year were $138.7 million compared to $120.3 million for the previous corresponding period.

Whitehaven’s average cash cost of sales increased in the six months to December 2011 to $64.04 per tonne from the $61.81/t for the previous corresponding period.

Margins also declined from the previous corresponding half’s 38% to 37% in the six months to December 2011.

Cost of sales at New Hope increased from $155 million for the six months to January 2011 to $169 million for the half year to January 2012.

The Queensland Resources Council warned that as the cost of producing Australian coal kept rising, export rivals including Indonesia, Colombia, South Africa, Canada and the US would step in to meet demand.

“For example, the United States is about to have its biggest coal export year since 1992 on the back of Queensland’s floods,” QRC chief executive Michael Roche said.

“They will be able to tell newly found customers that the price of coal from Queensland is also going up because of new taxes on carbon, diesel and a Minerals Resource Rent Tax.”