Development is not wish fulfilment

N.Enkhbayar, Economic Advisor to the Prime Minister, takes a wide-angle view of issues relating to the Tavan Tolgoi coal deposit and of the minerals sector vis-à-vis sustainable economic growth, as he answers questions from MMJ.

How much coal does Mongolia export?

We sell coal only to China at present and in the first five months exported 4.7 million tons. This should reach over 10 million tons at the end of the year, a threefold increase over 2009. Our extractable coal reserves are high, but we lack of quick transportation facilities and other  infrastructure. It is good that Energy Resources and Mo En Co are building roads with their own money.

Mongolia’s coal reserves are among the gest in the world. How can we be more competitive and get more value for our coal?

China is closing a large number of mines because of environmental and safety concerns. The number will go up to 7,000 small mines in five years, affecting domestic supply and increasing import needs. Its decision to depend on import mainly reflects environmental and safety concerns, but also a long term vision to conserve resources.

Mongolia also has to capture other Asian markets, aiming to supply at least 5% of the total demand to rate as a principal player. We have not tried to reach the Pacific region, but can export more to our immediate neighbours. For this, we first have to be much more professional, following international market practices. We have to understand regulations and learn how to study the market and make deals.

Trading in coal is very different from that in metals, such as copper. The price is set not on the basis of stocks but according to agreements. For example,  Australia and China have long-term agreements covering supply of millions of tons. Coking coal also must be supplied without break at pre-arranged prices covering long periods. We have to learn to identify markets, foresee how the demand curve moves, and how to negotiate. We have to create conditions where buyer and seller can coordinate demand and supply, agree on prices and make sure the commodity is delivered on time and without break.

The average price of the bituminous coal Mongolia exports was between $40 and $50 per ton in the first five months of this year. We would get prices 2-2.5 times higher if we found markets beyond China that could be reached from Pacific Ocean ports. For example, Australian coal is sold for $100 a ton in Japan. Higher prices can be commanded only when we find new markets and ways to reach the coal there. Both the state and the private sector have to work hard for this. 

Is the Tavan Tolgoi coal comparable in type and quality with the coal found in Australia, China and Indonesia?

A professional person can give a better answer. Generally speaking, coal for export is divided into two basic types: bituminous and brown. Coking coal, which Mongolia does not produce at present,  is divided into 5-6 types, according to texture, calorie level and moisture content. The criteria usually vary from country to country but not widely enough. As Mongolia has so far sold coal only to China, there has been no need to classify our output.

Tavan Tolgoi contains coking coal and it may very well be that it will be found to be of a very high class. Every year, estimates of the reserves are rising. So it is a priority now to have them classified according to internationally acceptable standards. Professionals say not less than 30% of the presently determined reserves in Tavan Tolgoi is coking coal. We need more drilling to confirm this. Our coal is believed to be more suitable than the Australian for coking and metallurgical production in the Asian market but the question of category will become important here. Australian coal is traded in 10 classifications, while we have only two.

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