However, the key driver would be the price competitiveness of Mongolian coals, relative to domestic Chinese and seaborne coking coal prices. The latter has succumbed to multi-year lows amid global demand destruction due to the coronavirus pandemic.

Market sources said the massive decline in Mongolia’s year-to-date coal exports to China boils down to two reasons. Firstly, the brief closure of Mongolia-China borders from February-March due to the Mongolian government’s efforts to contain the spread of the virus, and secondly, uncompetitiveness of Mongolian coal prices.

Just this week, between 1,000-2,000 trucks carrying unwashed Mongolia coals has been transported through Ganshuunsukhait/Ganqimaodu and Ceke, the gateway for Mongolia coking coal to China, industry sources said. This compares with 300-400 trucks in the second quarter of this year.

“I think we could expect the import volume of Mongolian coals to remain rangebound around 1 million mt per month. All imported coals are subjected to greater scrutiny as the Chinese authorities seek to control import volumes,” a Chinese trader said.

Market sources said that Mongolia’s coals are not explicitly subjected to import quotas, but there are other means to control the inflow of Mongolia coals, for example the slowdown at the borders for customs declaration and any slight change in the relationship between the governments of Mongolia and China may impact trade flows.

For Chinese end-users, however, price has always been a key determinant when purchasing coals.

“Currently, Mongolian coals have no price advantage compared with seaborne coking coals, which have fallen to multi-year lows. However, as the import quota wears thin and given the government’s effort at clamping imports, I think some demand may return to Mongolia coals,” a Northern China coke producer, who had increased his seaborne coking coal usage by 10% compared with 2019, said.

In response, Mongolian ex-mine coal prices have started to retreat by $5-$7/mt this week to around $54/mt, market sources said. Currently, unwashed Mongolia #5 coal is trading between Yuan 800-850/mt ($115-$122/mt) ex-washplant at Inner Mongolia.

Washed Mongolia #5 coals at Jingtang port are offered at around Yuan 1,250/mt DDP Tangshan, while Australian grade Premium Mid Vols are offered around the same price. Platts assessed PLV ex-stock Jingtang at Yuan 1,370/mt on July 17, equivalent to $168.67/mt CFR Jingtang.

A typical Mongolian #5 coal specification include 55% CSR, 27%VM, 9.5% TM and 8-10% Ash, while the specification of an Australian Premium Mid Vol like a Peak Downs North include 68% CSR, 22.4%VM, 9.7% TM and 10% Ash.