WARSAW (Reuters) - State-controlled JSW (>> Jastrzebska Spolka Weglowa SA), the biggest coking coal producer in the European Union, risks making an unexpected net loss in the third quarter and remaining in the red for the full year due to slumping coal prices, its chief executive said.

Jaroslaw Zagorowski had previously said the company was unlikely to post quarterly losses this year thanks to cost cuts, but the fall in coal prices was sharper than JSW had feared.

"The analysts are right to say that we will have to work hard to end the year in the black because, of course, there is a risk of a (full-year) net loss," he said.

JSW, which mines coking coal used to produce steel, should still post a net profit in the second quarter, he said. The miner reports its results for the April-June period on August 9.

The company had undertaken several steps to counter the fall in prices, as its main clients, such as world No. 1 steelmaker ArcelorMittal (>> ARCELORMITTAL), were forced limit production due to the economic slowdown, aiming to lower costs by up to 200 million zlotys ($62 million) by the end of this year, he said.

JSW has cut capital investment and plans to cut labor costs further. The management board is negotiating with unions to freeze wages for a year and wants cut some employee benefits.

"Two years ago coking coal cost some $300 per tonne, now it is $140-150. Such a slump cannot be compensated by savings," Zagorowski said.

He said JSW had not rejected an offer from cash-strapped rival New World Resources (>> New World Resources PLC) and was still in talks about buying some of its assets.

NWR approached JSW on July 1 about a deal but then warned it may close its Paskov mine because it could not find a buyer.

"We did not reject NWR's offer, we are still in talks. But it is too early to assess the negotiations," Zagorowski said.

JSW shares turned negative after Zagorowski's comments and were down 1 percent by 1352 GMT on Thursday while the Warsaw blue chip index <.WIG20> was up 1.3 percent.

(Editing by Louise Ireland)

By Agnieszka Barteczko and Pawel Bernat