How many members has Mongolian Association of Metal Producers got in its first year of existence? Almost all the mining companies, 30 to be specific, are already members, and we expect Altain Khuder LLC and State-owned Monrostsvetment to join us before long. Some ten companies came together to establish the Association, and then, over the past year, almost every company has come on board, after some talks and discussions.
The main goal of the Association is to stop bureaucratic highhandedness in the sector. At present, laws and regulations can be arbitrarily explained and enforced, and work at even the best mineral deposit can be shut down in an instant because of this. There have been instances when a single inspector or just an ordinary resident of a soum went to a mineral deposit and accused the management of violating some law in some way, forcing closure. It’s really sad that people do not believe that miners, as much as everybody else, want to protect the environment and do not want to destroy the land intentionally, but this popular condemnation of mining companies is very much there.
The past one year has seen Mongolia’s geological and mining sector shrink considerably, with companies operating at loss and retrenching workers. Are there projects that are working normally in this crisis? Exploration and excavating costs for iron ore, coal and spar have remained the same as before, so the important thing for them is to reduce transportation costs. This has not been possible. The world crisis is almost irrelevant to us, as our crisis is basically and largely of our own making.
Take coal. Our only buyers are in China, a country that has enough coal of its own. On top of that, a coal deposit has been discovered in Xinjiang that has 186 billion tons of reserve of which 30 per cent is coking coal. China is also reducing its dependence on coal. It is using renewable energy more and more and is also building power plants at its coal deposits, as well as gasifying brown coal. All this affects demand for Mongolian coal.
The crisis in the metal sector is mainly because of the unstable business environment in our country. Chinese companies are actively considering import of minerals from as far as Kazakhstan and Russia. We have failed to utilise our locational advantage by promoting uncertainty about doing business in Mongolia. Indeed, the Chinese may even prefer to go to Africa, so shaky is everybody’s trust in Mongolia.
A few gold and copper projects are running smoothly, and for the difficulties elsewhere, we can only blame our wrong approach.
The “Coal” programme of the Ministry of Mining seems to be going well, with the Ministry collaborating with both companies and professional associations. What about such a programme in the metal industry? Everyone promises support, but we are wary of what actual support will be there on the ground.
You see, it is not enough if the Ministry is supportive and willing to cooperate with industry. Nothing permanent can be achieved without involvement of the total government and adoption of a comprehensive policy.
As far as companies in the metal industry are concerned, we try very hard not to be dependent on just a few Chinese companies, but what option do we have? We sell our iron ore to them for $50-$60 a ton, knowing full well from the internet that it should be $100. People do not see our predicament, and criticise us for underpricing.
There are steel plants in China that get their raw material from Russia through Manchuria or even all the way from Brazil. This is possible because the two countries have bilateral trade agreements that make such deals economically viable. Mongolia does not have any such agreement in place. We would certainly want a reasonable price for our ore exports, or would like to export at least semi-processed products that fetch a higher price, but we are doomed to be doing business with China’s small traders, as the Mongolian government cannot reach a trade agreement with either of our neighbours. Only a proper policy or programme, whatever name you may wish to give it, can improve matters.
The first thing exporters seeking a fair price for their products need is a single-window policy. This will be evidence of the State’s commitment to exports, and go a long way towards encouraging investors, and end up in companies making a profit.
In China, State policy guides every aspect of exports: which port to use, how much to export, the specific content of the ore and all such details. It will benefit both Mongolian companies and Chinese buyers if the Mongolian Government signs an agreement with its counterpart in China to supply a product to a particular smelting plant located near a border port. Most of China’s hundreds of blast furnaces have been decommissioned in a bid to reduce air pollution, and only about 20 major companies are left in China’s metal industry -- all State-owned. An agreement such as I said is thus quite possible.
See how Mongolia made an agreement with China on the amount of coal to be exported over a given period of time. This was a right beginning, but was not wide-ranging enough. If it were carried to its logical conclusion, coal sales would have been higher and export income would have increased.
How much better would things actually be when infrastructure issues are resolved? It will be a long time before that happens, allowing us to make iron ore export from the western images profitable. The current pace of infrastructure development is too slow. The maximum handling capacity at Zamiin Uud port would be 30 million tons of goods a year, all transported by railway. Even with the best possible management, this will allow us to export a maximum of 10 million tons of iron ore, a very small part of our total presently approved reserve of 1 billion tons.
How will China’s policy affect Mongolia’s metallurgical production, exploration and export? Hundreds of small steel plants in China have given way to a handful of ones. China is also tightening the operating standards at these, including installation of further filters. It recently set new restrictions on the amount of harmful substances extracted during mining. This may lead to more steel plants closing down.
China does not want final products from us, but is interested in buying only iron ore. But I am sure we can sell them semi-processed products, so that we’ll be able to create more jobs within Mongolia.
China’s iron ore consumption is expected to reach its peak by 2021. How do you see future trends? It could be that 2021 will be the peak, but we don’t know how much iron ore will cost at that time. One thing that we can be sure of is that China’s steel plants will stop buying Mongolian iron ore starting from 2025 at the earliest.
A most significant development has been the success in western Europe and the U.S. in surmounting the technical obstacles to re-processing. They are now replacing the old facilities with those that have iron smelters with re-processing capacity.
China will need steel for the coming five years, as it builds modern housing for 400 million people, following its President’s commitment to provide all citizens with decent accommodation. Once that goal is achieved, demand for iron ore is quite likely to go down.
What is your opinion on suggestions that iron ore export should be restricted?Yes, there are people who say our reserves are limited and we have to keep some for the future, but I do not see much merit in this. As I said before, the state of our infrastructure will allow us to transport 10 million tons a year at the most. You may calculate for yourself how many years it would take for our reserves to be exhausted.
Mongolia’s annual consumption of iron ore is 600,000 tons at its peak, which is equal to the capacity of just one of the small plants that were shut down in China. So there will always be enough for our own small national market.
What comes next for the Metal Producers` Association? And what have been the major constraints on you? Mongolian companies in the metallurgical sector wish to collaborate, and not compete with one another. It will benefit them as well as the country. Our first need is the single-window system that I have earlier mentioned. Then we should build a steel plant with a capacity of 500,000-700,000 tons. Right now it is simply a dream but it is eminently achievable with support from the State. The support we need is not financial. All we want is that the Government should adopt and implement a proper policy and stand as our guarantors. During our negotiations, buyers always ask, “Yes, your terms make sense, but where is the guarantee for a sustainable partnership?”
We have only a brief experience of trading in a free market. Private sector mining came into its own only 7-8 years ago. All of us who are now national businessmen started with the money we had saved through our personal businesses. So we always have financial difficulties.
Skilled and qualified manpower has also been a restrictive factor. None of us had the required experience, but we have been keen to learn and make things happen. It is this willingness that has taken us here.
“Mongolian Steel” is the name of companies that have come together with the sole wish to build a steel plant in Mongolia. There has been some progress but much less than desired or required, and this will be so until the legal climate improves.
We hear there would be steel plants in Darkhan and Sainshand. Do we need that many? Choir and Darkhan are geologically the most convenient sites. They are close to both water and energy sources. We are not talking about such projects right now. I don’t know much about the so-called Sainshand Industrial Complex. I personally think it’s a political show.