COMPENSATING FOR COAL PRICE DECLINES THROUGH INCREASED EXPORT VOLUMES

A.Khaliun

CURRENT SITUATION

On September 17, the National Statistics Committee released social and economic data for the first eight months of 2024. The report indicated that exports from our country reached $10.6 billion, while imports totaled $7.5 billion. During this period, the foreign trade balance recorded a surplus of $3.1 billion, though this figure represents a decrease of $935.6 million compared to the same period last year.

According to data from the first eight months of 2024, minerals accounted for 93.3% of total exports, with 91.9% of these minerals going to China. Overall exports increased by $620 million compared to the same period last year, driven by a $372.5 million rise in coal exports, which represented a 6.4% increase. Additionally, the physical volume of coal exported rose by 12.8 million tons, reaching a total of 55.4 million tons.

The first autumn session of the new Parliament is set to begin on October 1. A key agenda item for this session is the draft law for the 2025 Budget. The government projects that economic growth will accelerate to 8% in 2025, while the Asian Development Bank forecasts a more conservative growth rate of 6%. The economic outlook for the coming year is closely tied to the financial health of China's industrial sector.

The IMF and the World Bank project that China's economic growth will be 4.8% in 2024, decreasing to 3.8% in 2025.

B. Batdavaa, Head of the National Statistics Office: A gradual decline in China's economic growth is becoming evident through various monthly indicators. For instance, the producer price index fell by 1.8% year-on-year, and inflation decreased by 0.6%. Such negative or minimal price changes signal weak economic activity.

What does this mean for Mongolia? Given that 90% of our mining raw materials are exported to China, there is a risk of decreased export revenues linked to falling raw material prices. However, an analysis of export volumes for the first eight months of 2024 shows that we are offsetting the decline in coal prices by increasing both the volume and physical quantity of our exports.

The current situation is expected to persist into next year, and the government has accounted for this in the upcoming budget. Mongolia supplies approximately 50% of China's coking coal imports. In the first seven months of 2024, out of a total of 47.5 million tons of coal exported to China, 34.54 million tons were coking coal, representing 51% of China's total imported coking coal.

Compared to the same period last year, Mongolia's coking coal exports increased by 7.9 million tons, or 30%, while China's total imported coking coal rose by 15.5 million tons. Mongolia faces competition in the coking coal market from Russia and Australia. In the previous year, Russia exported 17.8 million tons of coking coal to China, marking an increase of 2.4 million tons from the same period in the prior year.

Australia's coal exports have rebounded in the years following the lifting of the export ban imposed by China; however, the physical volume remains several times lower than pre-ban levels. The government has taken this situation into account while drafting the 2025 budget.

EXPECTATION

The state of the economy in 2025 cannot be assessed in isolation from fluctuations in coal exports and market prices. Therefore, It is important to analyze how the primary mineral that has generated hope and expectations for Mongolia is reflected in the draft state budget.

China, the world's largest coal consumer and producer, is expected to maintain stable coking coal consumption, primarily driven by its domestic steel market. However, external factors must also be considered. The International Energy Agency (IEA) reports that global policies aimed at reducing greenhouse gas emissions will impact China's coal prices and production.

Sinopec has noted that coking coal, a key raw material for China's rapid industrial development, will continue to be utilized over the next decade, despite the global push toward transitioning away from coal and adopting clean energy sources. However, it is evident that coal will ultimately be phased out in the long term. This serves as a reminder that alarm signals are beginning to flash for our coal-dependent country.

Therefore, the coming years are crucial for Mongolia and represent an opportunity that should not be overlooked.

Since February 2023, Mongolia has started trading coal on the stock exchange, resulting in increased transparency in trading, along with a rise in both the physical volume and revenue of coal orts. Since exports. this transition, Erdenes Tavantolgoi JSC has not signed any contracts based on mine mouth conditions, opting instead to conduct all coal trading exclusively through the Mongolian Stock Exchange. 

The stock exchange, which started successfully with coal, now trades iron ore and copper, and its variety is increasing.

As of the first eight months of 2024, Erdenes Tavantolgoi JSC extracted 22.8 million tons of coal and sold 21.6 million tons, generating revenue of $2.3 billion. During this period, the company paid 2.4 trillion MNT in taxes to the budget and successfully completed 97.1% of its annual plan.

As of the first eight months of the year, 11.7 million tons of coal valued at $1.3 billion were traded in 34 stock exchange transactions. Additionally, the foreign exchange reserves of the Bank of Mongolia increased by $2.4 billion.

"For Mongolia, this period of exporting raw coal will not last long. It is essential to establish a processing plant in the near future," stated Finance Minister B. Javkhlan during discussions on the 2024 state budget draft in Parliament last year.

As a result, by exempting processing plant equipment from customs duties and accelerating the construction of a coal concentration facility, the first stage of the Coal Concentration Plant project-a facility with a capacity of 10 million tons of coal per year-was launched last June.

The government plans to maintain its border crossing reform policy by digitizing border checkpoints, increasing the number of vehicles passing through, and enhancing the development of cross-border railways, and improve the operation of the mining products exchange. As a result, coal exports are projected to reach 83.3 million tons in 2025.