Mongolia pins coal export ranking hopes on railway

Mongolia will have a better chance of regaining its position as the top exporter of coal used to smelt steel in China after a railway is completed in late 2015, according to the chief executive of Mongolian Mining.

"Competitiveness of Mongolian coal is strongest in the China market due to its geographical proximity, but it has been hampered by the major obstacle of transportation," said Battsengel Gotov. "With the expected completion of a railway by the end of 2015, Mongolia will make a comeback."

Gotov made the comment after the company posted a net loss of US$25.2 million for the first half of the year, against a profit of US$31 million a year earlier, due to lower coal prices and higher finance costs.

Mongolia lost its leading export position to Australia in the first half of the year with its coking coal exports to China falling 36 per cent to six million tonnes. Australia's exports to China doubled to 13.3 million tonnes.

Despite the shorter distance to China's steel mills, a lack of efficient transport by rail meant that Mongolian coal trucked to the Chinese border lost market share to seaborne Australian coal.

A large portion of imported coking coal is sold to coastal steel mills, with Mongolian coal requiring further rail transport after crossing the border.

Mongolia gained the top position in 2011 and retained it last year, after floods in 2011 and labour disputes last year reduced production and exports from Australia.

CLSA's head of resources equities research, Andrew Driscoll, said BHP Billiton Mitsubishi Alliance, Australia's largest metallurgical coal miner and exporter, had been ramping up production to achieve lower costs and productivity gains this year.

That had seen Australia's share of the Chinese market jump to 37.7 per cent in the first half of this year from 26.2 per cent for the whole of last year, while Mongolia's share had dropped to 17 per cent from 35.7 per cent.

Mongolian Mining was the only miner in the nation to have increased its exports in the first half, by 32 per cent, Gotov said.

It was more competitive than its domestic rivals because it had coal washing and processing facilities that added value to raw coal and helped it soften the blow from a 19.3 per cent year-on-year fall in average selling prices in the first half of the year to US$79 a tonne.

Driscoll said he expected Australia would continue to be competitive, helped by its depreciating currency.

To bolster Mongolia's competitiveness and help lighten Mongolia Mining's debt load, the Mongolian government has offered to buy the company's paved road, which Gotov said could bring in about US$100 million. He hopes to conclude talks on the road's sale by the end of this year.

Gotov also said the government had proposed to Beijing extending a Chinese railway into Mongolia, which could cut transshipment costs by US$9 a tonne.

This article appeared in the South China Morning Post print edition as Mongolia pins coal export ranking hopes on railway