SUCCESSFUL AND EXPANDING  COMMODITY EXCHANGE TRADING BOOSTS MONGOLIAN ECONOMY

А. Khaliun

Mongolia successfully started trading its minerals on a Mining Products Exchange in 2023. Parliament approved the Law on Mining Products Exchange on December 23, 2022, and the law came into effect on June 30, 2023. Trial trading commenced six months earlier and preparations for iron ore and copper trading on the exchange are largely complete.

At the government meeting on December 14, 2022, the procedure for open electronic trading of coal for export was approved, and it was decided to conduct coal trading through the Mongolian Stock Exchange. In accordance with this, the first trial electronic call trading started on January 12 last year, connecting companies interested in buying and selling coal.

It’s indeed true that coal market players did not welcome this decision, which aimed to expose the hidden economics of coal, eradicate corruption and bureaucracy, and establish direct connections between buyers and sellers at the exchange, bypassing intermediaries. At the outset of trading, only 45 partner companies from China cautiously and hesitantly registered on the Mongolian Stock Exchange. However, as time progressed, the situation changed significantly. Today, over 240 companies have registered and entered into agreements to procure coal through the exchange.

The shift to exchange trading has been accompanied by a notable increase in the price of coal. Previously, coal was sold at $70-80 per ton under mine mouth conditions, but since transitioning to exchange trading, prices have surged to $140-190 per ton. This development brings tangible benefits to the economy, much to our satisfaction. In 2023, Mongolia exported 70 million tons of coal for the first time in its history, 15 million tons of which were sold on the exchange.

The following question arises: If this is so profitable, why can’t we sell 100% of our coal on the exchange? The government has intended to transfer state-owned enterprises to exchange trading. This work started with Erdenes Tavantolgoi JSC. The company is a state-owned enterprise and has already had long-term contracts with business partners and received certain advance payments.

In addition, some contracts are long-term and run until 2027 and 2028, so it is natural for Erdenes Tavantolgoi to adhere to its business ethics and fulfill its contractual obligations.

“The number of coal supply contracts previously concluded by Erdenes Tavantolgoi JSC is steadily decreasing. As of March 2024, there are over 100 remaining contracts set to expire in 2027 and 2028.  Therefore, based on realistic estimates, Erdenes Tavantolgoi has started trading 10% of its coal on the exchange and, by gradually increasing the volume of exchange trading, already 40% of its coal is being sold on the exchange today,” said J. Ganbaatar, Minister of Mining and Heavy Industry.

Energy Resource became the first private sector company to successfully sell its coking coal on the Mineral Products Exchange.

At present, five state-owned and private companies, namely Erdenes Tavantolgoi LLC, Energy Resources LLC, Khangad Exploration LLC, Tavan Tolgoi LLC and Andyn Ilch LLC, have sold 15.6 million tons of coal on the exchange.

According to the exchange report, by the end of 2023, the following companies were active in selling coal on the exchange:

•    Erdenes Tavan Tolgoi JSC sold coal worth 4.366 trillion MNT, representing 60% of the total exchange trade
•    Tavan Tolgoi JSC trades represented 26% of the total exchange trades, valued at 1.9238 trillion MNT
•    Energy Resources LLC - 13.4% of exchange trades (986.5 billion MNT)
•    Khangad Exploration LLC - 0.93% of exchange trades (68.15 billion MNT)
•    Andin Elch LLC - 0.02% of exchange trades (1.35 billion MNT)
Since the beginning of 2024, 4.4 million tons of coal have been sold on the exchange.

Coal sold on the exchange is swiftly delivered to buyers thanks to the establishment of a dedicated gateway via the Gashunsukhait - Gantsmod border crossing. On March 19, 2024, Erdenes Tavantolgoi JSC for the first time traded on the exchange 20 sets or 128 thousand tons of coking coal designated for delivery to Mandal port in China. This marked the establishment of a new export and transportation gateway for exchange-traded coal at the border crossing, presenting an opportunity to boost coal exports.
The Board of Directors of the Mongolian Stock Exchange issued a resolution to trade iron concentrate and iron ore on the exchange from September 2023. Consequently, Mongolrosvetmet SOE and Darkhan Metallurgical Plant LLC engaged in exchange trading, collectively selling 680,000 tonnes of iron ore and concentrate valued at 7.5 trillion MNT ($2.2 billion).

As of March 2024, there are five companies registered on the Mongolian Stock Exchange selling coal and two companies selling iron ore, while there are 269 companies buying commodities. J. Tsogtbayar, the executive director of the Mongolian Stock Exchange, noted that the majority of buyers are Chinese firms, with the remainder coming from South Korea, Hong Kong, and Kazakhstan.

In addition, the Ministry of Mining and Heavy Industry is preparing to organize fluorite trading in collaboration with the Stock Exchange.

Recently, relevant organizations have been preparing to trade copper concentrate via the Stock Exchange. It has been decided that 5-10% of Erdenet’s copper concentrate will be traded through the stock exchange starting in 2024. The auction for trading the copper concentrate is scheduled to begin in April 2024, with the auction date rapidly approaching.