Australia's coking coal producers face a tough balancing act: robust demand growth prospects from top buyer India versus a state royalty regime they argue imposes excessive levies and discourages new mining investment, according to a Reuters report, contributed by columnist Clyde Russell.

Coking coal is the core raw material for steelmaking. Australia supplies roughly half of global seaborne coking coal, with its exports hitting 148.4 million tonnes in 2025.

Seaborne coking coal demand is set to surge over the coming decade. India, already absorbing around one-quarter of all seaborne coking coal, plans a massive expansion in steel output amid nationwide urbanization and industrialization.

Its annual steel production is projected to more than double from the current 163 million tonnes to roughly 400 million tonnes by 2035.

India's domestic coal reserves are abundant, yet less than 5% of its coal output meets the quality standard required for steel production. The country also intends to rely on coal-intensive blast furnace and basic oxygen furnace steelmaking routes, rather than cleaner yet costlier alternatives such as electric arc furnaces fed with high-grade scrap iron ore.

This will further lift India's reliance on imported coking coal, and Australia stands as the primary supplier capable of meeting the incremental demand.

Australian coking coal prices have seen wild volatility in recent years. The benchmark has spiked to a record $635/t following the 2022 Russia-Ukraine conflict, while domestic weather-driven supply disruptions pushed prices above $350/t in 2023.

Prices have stabilized from mid-2024 onwards and staged a moderate recovery after hitting a four-year low in March last year. Singapore Exchange coking coal contracts closed at $242/t on July 1, compared with $173.5/t on March 24 a year earlier. Current prices deliver strong profit margins for Australian coking coal operations.

Global listed miner BHP Group, jointly operating the world's largest coking coal export business with partner Mitsubishi, disclosed that unit production costs at its Queensland mines would come in at $116-128/t in the fiscal year ending June 30.

Its nine-month operational report through March 31 recorded an average realized coking coal selling price of $200.12/t. Given the recent price uptick, full-year average prices are poised to rise, meaning BHP is likely to secure gross margins above $100/t on existing output.

The core industry challenge stems from Queensland's tiered coal royalty overhaul implemented in July 2022. The progressive tax structure starts at 7% for coal valued under $100/t, rising to a maximum marginal rate of 40% for prices exceeding $300/t. At prevailing market prices, operators pay a 20% royalty on the value band of $175-225/t and 30% on any value above $225/t.

BHP and peer miners maintain that steep royalty rates render new coking coal mine expansions economically unviable. The firm has confirmed it will allocate no further growth capital to its Queensland coal assets, effectively putting its mines on a path of managed decline. Only maintenance sustaining capital will be injected until mineral reserves are fully depleted.

While mining companies naturally prioritize shareholder returns when allocating capital, the industry faces a fundamental dilemma amid India's long-term demand expansion. If India lifts its annual steel capacity by 20 million tonnes each year over the next decade, it will require an extra 15 million tonnes of coking coal annually, nearly all sourced from overseas imports.

Consultancy DBX Commodities' data shows India imported 83.17 million tonnes of coking coal in 2025, up from 74.55 million tonnes in 2024. Adding 15 million tonnes of annual seaborne demand for a decade will place severe strain on global coking coal supply chains, even if major importers including China and Japan cut purchases by shifting to low-carbon steel manufacturing technologies.

This leaves miners such as BHP with two stark options: absorb the heavy royalty burden and capture robust margins amid rising coking coal prices, or divest coal assets to rival firms willing to capitalize on India's steel demand upside.