Mongolia is keen to further its coking coal trade cooperation with China, though efforts will be needed to overcome regulatory hurdles and improve logistics, senior executives from large mining companies and trade associations said Thursday at the 7th Coal Mongolia conference at Ulaanbaatar.

"Coal mining plays a big role in [government] revenue and job creation," a Mongolian politician said on behalf of the country's prime minister J. Erdenebat, who could not attend the summit at the last minute.

"Mongolia has [coal] export capacity and China has demand... we hope this will continue," said Mongolian Coal Association president T. Naran.

China is also keen to explore "huge potential in coal cooperation" with Mongolia, said the deputy secretary general of China's National Coal Association, Sun Shouren.

Much of the rhetoric stems from the interdependence between China and Mongolia in the coking coal market and appears to be driven by anxieties caused by a recent slowdown in that trade flow due to significant bottlenecks at border crossings.

Two sources said current truck queues on the Mongolian side of the border were 150-160 km (93-99 miles) long, which has caused a huge slowdown in Mongolian coal imports to China.

This comes at a time when China's domestic supply is particularly tight after more stringent safety measures were imposed in its Shanxi production hub after a spate of mining accidents in August.

Premium low-vol coking coal imported to China was assessed at $219/mt CFR China Wednesday, up 20% since August 1, based on S&P Global Platts data.

The distance from coking coal mines to the Mongolian-Chinese border at Ganqimaodu is generally around 240-250 km.

Multiple sources said the sudden slowdown at the border came after the recent election of Mongolian President Khaltmaa Battulga in July, who appears to be more keen on enhancing relations with Russia.

However sources also noted that it was not only Mongolia-China cross border trade that had slowed recently. There has been talk in trading and procurement circles in recent weeks that China is more broadly trying to reduce its dependence on coking coal imports, including via the seaborne route.

China has seen a significant spike in coking coal imports this year, with imports over January-July surging 32% year on year to 36 million mt. Landlocked Mongolia was China's second largest coking coal supplier in 2016, accounting for 41% of its import supply. Almost all of Mongolia's coking coal exports go to China. The country also produced some thermal coal, but the majority of its output is coking coal used by steelmakers.

BOOST COMPETITIVENESS

Efforts to improve the competitiveness of Mongolian coking coal to drive greater trade should focus on regulatory actions, improving logistical infrastructure and lowering costs, said the CEO of Mongolian Mining Corporation, one of Mongolia's biggest coal miners, G. Battsengel.

Transportation and logistics bottlenecks needed to be fixed by completing required infrastructure, while better connections to railway networks would help Mongolian coal reach end-users in China, he added.

The current sales portfolio of MMC is spilt between direct end-user sales and, to a lesser extent, Chinese agents. A big proportion of MMC's sales are concentrated in Inner Mongolia, where end-users have little or no access to seaborne imports and "Mongolian coals dominate," Battsengel said.

In the longer term, Mongolian coals have to become more cost competitive, especially against lower-cost Australian supply, he said.

This is especially so when Chinese end-users do not need to pay 3% import duties for Australian coking coals due to a bilateral FTA, which Mongolia does not have with China, Battsengel added.

Efforts would need to be made to improve inter-governmental agreements on transportation and logistics, and on bilateral trade, Battsengel said.

Published Date:2017-09-08