JIMBARAN, Indonesia, Sept 24 (Reuters) - An industry that is shutting down some production as prices hover around four-year lows and higher taxes bite doesn't sound like it should be particularly bullish.

But metallurgical coal producers have reason for medium- to long-term optimism as supply remains constrained and ambition fades to transition steel-making to low-emission production.

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Australia dominates the seaborne market for metallurgical coal, the high-energy grade used mainly to make steel, with a share of exports of 154 million metric tons in 2024, or 52% of the global total, according to data from commodity analysts Kpler.

This is three times the exports of the next biggest, the United States, which shipped 51.5 million tons, followed by Russia with 38.4 million and Canada with 28.0 million.

Metallurgical coal prices have trended weaker this year amid a combination of ample supply from these producers and softening steel production in 2025, which dropped 1.9% in the first seven months of the year compared to the same period last year, according to data from the World Steel Association.

Benchmark futures on the Singapore Exchange dropped to a four-year low of $173.50 a ton on March 24, and have traded mostly sideways since then, ending at $188.25 on Tuesday.

BHP Group (BHP.AX), opens new tab, the world's biggest metallurgical coal producer along with its partner in its Australian mines Mitsubishi, said on September 17 it would suspend production at its Saraji South mine in Queensland state.

BHP said while medium-term demand for its metallurgical coal was strong, it was no longer profitable to mine the lower-margin parts of the complex.

BHP CEO Mike Henry also criticised the Queensland state government for its decision to raise royalties in July 2022 to 20% for coal priced above A$175 ($117) a ton, with a top tier of 40% for prices over A$300. Previously, the top tier was a 15% royalty on prices over A$150 a ton.

While Henry would no doubt be keen to deflect the blame for the mine closure onto government taxes, the decline in prices carries a far larger share of the blame.

Everyone's chasing gold, but is this the right time to follow the crowd?

The question for metallurgical coal is why should the outlook be optimistic if conditions are currently dire enough to warrant closing down mines?

The answer is that while 2025 is proving a soft year for steel production, it is expected to increase in coming years, especially as developing countries in Asia build their economies and raise urbanisation rates.

INDIA RISING

India is expected to double its steel output to more than 300 million tons in the next 10 years, while countries like Vietnam are also planning to build more capacity.

While India is a major coal producer, it largely mines thermal coal and therefore imports most of its metallurgical coal.

The South Asian nation is also largely building basic oxygen furnace (BOF) steel plants, which require metallurgical coal, rather than electric arc furnaces, which replace most of the coal with electricity.