Perspective: Drop the 40% Royalty and Watch Prices Drop

Queensland’s top-tier coal royalty—the headline 40% clip above A$300/t—has become the market’s lightning rod. The chorus is getting louder: BHP hinting at reassessing Queensland exposure, Peabody saying the regime diverts capital to the U.S., Bowen sliding into administration, and Curragh slipping red once royalties and obligations are counted. Headlines aren’t noise; they’re the capital-markets readout.

Here’s the paradox that matters for price: the existence of that 40% tier disciplines future supply. Even when the effective take is only mid-teens at today’s prices, the optionality of 40% at higher prices acts like a governor on expansions and marginal tons. Scrap it, and producers’ marginal costs drop. More Queensland tons chase the same demand, and the industry’s price floor sinks—exactly the opposite of what some lobbyists imply.

In short: the 40% headline hurts investment narratives, yes—but it props up the market by curbing runaway supply. Remove it, and you don’t unleash a boom; you invite a cheaper, lower-floor regime that undercuts everyone’s margins when the cycle turns.