Friday, June 20, 2014

Mongolia secures growth with cement production hike

By Paulius Kuncinas
Regional Editor, Oxford Business Group

New production capacity in Mongolia’s cement industry is set to meet rising demand as advanced technology is replacing old equipment, moving towards self sufficiency in one of the key materials in the construction trade.

In May, Mongolia began production at the country’s largest cement plant, a one million ton capacity facility in Khutul soum of Selenge Province. The plant was refurbished over a one-and-a-half year period, replacing outdated technology from an inactive Soviet-era cement factory with a modern dry process system.

Located 250 km north of Ulaanbaatar, output from the plant will be equal to around 50 percent of the nation’s annual cement consumption. By using the dry process, which does not have water added to the ground-up materials during production – unlike in most older plants – it will require less power to fire its kilns and cause less pollution.

Prior to the Khutul plant coming back on line, Mongolia’s cement production was around 240,000 tons per year, well short of the two million tons poured in 2013. The shortfall in production has traditionally been met by imports, mostly from China, though demands from that country’s domestic market have at times put constraints on sales to its neighbor, limiting construction sector growth in Mongolia.

Increased capacity in the project pipeline

At the end of April, the European Bank for Reconstruction and Development (EBRD) announced it would provide a 65 million USD loan for Mongolian firm Senj Sant to fund the construction, commissioning and operation of a high-tech dry process cement plant. The loan was part of an extended financial package agreed to in May 2013, which included a 20 million USD equity investment in Senj Sant, whose parent company is the Monpolymet Group.

Phil Bennett, first vice-president of the ERBD, said the project represented another step towards the diversification of Mongolia’s economy. “It directly supports and nurtures the development of the private sector in a relatively underdeveloped industry in Mongolia,” he said.

The new plant, located in Dornogobi Province, is forecast to add one million tons of production capacity to the cement industry, with much of its output to be directed towards supplying cement and raw materials to major mining projects in the region.

Demand for cement, along with other building materials, is set to rise sharply in the coming years as both the public and private sectors roll out extensive construction projects. With a boom in the mining sector in particular, the demand for cement to build infrastructure both at mines and for transport links will climb.

At the same time, state-backed projects in infrastructure, housing and utilities will also draw heavily on domestic production and imports. This demand could cause some bottlenecks in the supply pipeline, pushing up prices if the flow of materials cannot be maintained at a level equal to the construction sector’s requirements.

Cement self-sufficiency

The increased demand for cement is also boosting other sectors, notably the mining industry that provides a ready market for raw materials used in the production process as well as for coal to fire kilns. In early May, international mining firm Viking Ashanti announced its Mongolian subsidiary Auminco Mines had been in discussions with local cement manufacturers to supply their coal needs from Auminco’s Berkh Bituminous Coal Project in northern Mongolia.

Apart from the Senj Sant project, there are at least two other cement plants in the works with the Mongonyn Alt Group and Germes Gakhiur building new production facilities, both expected to be completed and begin production some time in 2015.

With the additional production these plants offer, Mongolia is expected to come close to cement self-sufficiency. This could still be tested by rising demand from both the public and private sector, with some estimates putting requirements at up to three million tons a year by 2015.

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