Mongolia's coal shipments to China peak in June as lockdowns ease
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Recent export statistics out of Mongolia show that coal export volumes were 8.1 mt across the first six months of 2022, down 19% or 1.5 mt year-on-year. The export value jumped US$1.3 billion over the same period in 2021 to reach US$2.4 billion. This resulted in an implied export price of US$274/t for Mongolian coal in June 2022.
Mongolia is hoping for a big comeback in 2022 following lacklustre exports in 2021 due to pandemic-led restrictions at border crossings. Congestion on the border with China has improved as COVID-19 movement restrictions eased in the country. This has resulted in an increase in the number of trucks carrying metallurgical coal into China in June.
Meanwhile the Tavan Tolgoi-Gashuun Sukhait railway line was scheduled for commissioning in July 2022, and will provide a notional 30 mtpa of freight capacity. Assuming Mongolian coal production can increase, there is a further 20 mtpa of truck capacity that would be notionally available (based on Commodity Insights forecasts of border throughput over the last 15 years).
China’s steel sector is still constrained by falling construction activity and COVID-19 disruptions that have shut down entire cities and industrial hubs. In response to this, the Chinese Government has announced plans to invest in infrastructure as a stimulus measure.
Accordingly, Chinese steel mills have commenced restocking of steel making raw materials and Mongolia is hoping to gain a larger share of coal flows to China (at least back to the levels experienced in 2019-2020 when China imposed a ban on Australian metallurgical coal). China could be spoiled for choice with Russia also looking to redirect its metallurgical coal to the Far East, as Europe imposes sanctions on Russian exports. At the same time, the Australian government is seeking to reset relationships with China, which could result in a resumption of Australian coal flows into China.
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