This is a repeat of an item issued on Thursday. The views expressed here are those of the author, a columnist for Reuters.

By Clyde Russell

LAUNCESTON, Australia, July 2 (Reuters) - Miners of coking coal in top exporter Australia face the dilemma of balancing expectations of strong demand growth from top buyer India against a royalty tax system they view as rapacious and punishing to investment.

The high-quality fuel, also known as metallurgical coal, is used to make steel and Australia supplies around half the global seaborne market, with exports of 148.4 million metric tons in 2025.

Demand for coking coal is expected to surge in the next decade as India, which already buys about a quarter of seaborne volumes, massively increases its steel production.

India's annual steel output is forecast to more than double to about 400 million tons by 2035 from 163 million now, as the South Asian nation urbanises and industrialises.

The problem for India is that while it has vast reserves of coal, hardly any of it is high enough quality to be used to make steel, with less than 5% of current production being suitable.

India also plans to use the coal-intensive blast furnace and basic oxygen furnace method of producing steel, as opposed to cleaner but more costly alternatives such as high-grade iron ore used in electric arc furnaces.

This will increase India's reliance on coking coal in coming years, and few countries are better placed than Australia to meet the demand.

Australian coking coal prices have been volatile in recent years, spiking to a record $635 a ton in the aftermath of Russia's 2022 invasion of Ukraine, while supply disruption from weather events in Australia led to moves above $350 in 2023.

However, they have been relatively stable since the middle of 2024 and have been on a mild rally since hitting a four-year in March last year, with Singapore Exchange contracts SCAFc1 close at $242.00 on Wednesday, up from $173.50 a ton on March 24 last year.

Current prices make production of coking coal in Australia highly profitable.

BHP Group BHP.AX, which together with its partner Mitsubishi 8058.T is the world's largest exporter of coking coal, said it expects the unit cost per ton at its Queensland state mines to stand between $116 and $128 in the fiscal year that ended on June 30.

In its operational report for the nine months ended March 31, BHP said it received an average price of $200.12 a ton for its coking coal.

That is likely to increase for the full year, given the recent upward shift in prices, meaning that BHP is probably earning more than $100 a ton from current production.

ROYALTY RISE

The problem for the world's biggest mining company is that the Queensland state government hiked coal royalty rates in July 2022, adopting a sliding scale from 7% on prices up $100 a ton, rising to 40% for above $300.

The current price would attract a royalty payment of 30% on the value above $225 a ton and 20% on prices between $175 and $225.

BHP and other mining companies have said the high royalty rates make it difficult to justify new investment in coking coal mines and the company has said it will not invest any further growth capital in its Queensland mines.

In effect, BHP is saying its mines will undergo what could be described as managed decline, with only sustaining capital invested until the resource is depleted.

While it is to be expected that mining companies will make investment decisions they believe to be in the interests of shareholders, the question is what really is in their interests as far as coking coal goes.

If India does expand its steel production by 20 million tons per year for the next 10 years, it will require some 15 million tons of extra coking coal each year, the bulk of this having to come from imports.

India imported 83.17 million tons of coking coal in 2025, up from 74.55 million in 2024, data from commodity analysts DBX Commodities shows.

Adding 15 million tons a year to seaborne demand for the next decade would put tremendous strain on global coking coal supplies, even if other major importers such as China and Japan cut back by transitioning to greener steel production methods.

That leaves miners like BHP with an interesting choice. Suck up the higher royalties but still make strong margins as coking coal prices move higher. Or sell out to other companies that can see the potential of India's steel demand.

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The views expressed here are those of the author, a columnist for Reuters.