Markets have been upended and a potential shortage in one of Queensland’s biggest exports is looming.

Apart from the turmoil caused by the State Government’s royalty hike on coal, analysts see significant changes underway in the market caused by a massive shortage for thermal coal, a commodity that has been traditionally the poor cousin of coking coal.

Coking coal is now being directed into the thermal market, increasing a risk of a shortage for the commodity used in steel making.

That shortage could be exacerbated by BHP if it maintains its freeze on investment in the state over coal.

Adding to that, India is desperate for the commodity and Indian steel giant Tata recently said it was so concerned about the apparent future shortage of coking coal it was prepared to underwrite projects to meet an estimated $4 billion demand over the next 10 years.

That issue was not being helped by the $US200 a tonne difference between the two with thermal coal selling at $US400 a tonne and coking coal down around $US200 a tonne, well down on the record prices it was receiving earlier this year.

Andrew Hines, who is the head of research at Shaw and Partners, described the situation as bizarre.

“I cannot recall thermal coal ever trading this far above coking coal, it normally trades at a substantial discount – coal markets are completely broken,” he said.

“Premium coking coal is relatively scarce – there are only a few coal basins in the world where the right conditions generated premium coking coal. Queensland’s Bowen Basin is one of them. Elk Valley where Teck Resources operates is another.

“There is now an incentive for coking coal producers to sell their product as thermal coal – they can get $US200/t more for it. It won’t happen in large volumes (contractual obligations, retooling wash plants, blending limitations, etc) – but we will start to see coking coal supply further tighten.”

Coronado, which owns the Curragh mine in central Queensland announced this week that it would be directing some of its coking coal into the thermal market, but Hines said there was a big opportunity for coking coal.

“With an ongoing energy crisis in Europe, Russia/Ukraine disruptions, and China building more thermal coal power stations – thermal looks to be well supported. That implies lots of upside for coking coal from current levels.

“The demand outlook for coking coal is strong – global steel output continues to rise, and is particularly strong in India. India has a target to double its steel output over the next 10 years – and it is very short coking coal domestically. India is already the largest importer of coking coal (ahead of China) and that will grow.

“BHP announced this week that it will not invest in any more capacity in Queensland Coal (post the royalty increases). Glencore has made a similar pledge. Teck is largely at capacity in Canada. Where is all the new coking coal supply going to come from?”

Elsewhere, Whitehaven Coal has rebuked the State Government over the claim it was supportive of the controversial hike in coal royalties.

The company, which is developing the $1 billion Winchester South coal project in central Queensland, is backing away from quotes out of an analyst briefing recently in which its executives said that the royalties hike would not have a material impact on the project.

“Whitehaven Coal wishes to clarify it does not support changes the Queensland Government has made to increase coal mining royalties. Whitehaven is one of a number of companies and other stakeholders that have spoken out publicly against the royalty increase which the company believes undermines Queensland’s reputation as an investment destination,” the company said.