by Ewen Levick | Editor
The launch of the Tavan Tolgoi rail line in mid-September was heralded as a win for coal exports to China. President Khurelsukh said it could lift exports to 50 million tonnes per year, up from 28.6 million tons in 2020 and just 15.9 million tons last year as truck routes were affected by pandemic-related border closures.
But some experts are warning that coking coal exports in particular will begin declining from the end of this decade as China increases its self-sufficiency in steel making, thanks to its improving ability to re-use scrap steel.
Coking coal is a primary ingredient in steel-making. According to Khangai Tserenraash – a co-founder of market intelligence firm Mira Mongolia – the next eight years could mark the peak of Mongolian coking coal exports, which will then begin to drop.
“The future of coking coal is not as bright as we thought a couple of years ago,” Tserenraash said to Mongolia Weekly.
“China’s green policies are already shifting the country’s technologies to use less coking coal in steel-making. It doesn’t look like Chinese steel consumption is going to rise. For Mongolia, that could potentially mean there won’t be a market for our coking coal.”
There are two main types of steel production: electric arc furnaces, which use an electric current to melt scrap steel and direct reduced iron to produce molten steel; and traditional blast furnaces, which melt coke, limestone and iron ore together to produce pig iron, which is then mixed with carbon to make steel.
Blast furnaces consume coking coal and currently account for the majority of Chinese steel production. But electric arc furnaces do not consume coking coal. These account for more than 70 percent of steel production in the United States and have the advantage of recycling existing steel and reducing carbon emissions.
“In the past five years, China has committed to reducing carbon emissions from steel production. They have shifted substantial portions of steel production capacity into electric arc furnaces,” Tserenraash says.
“Blast furnaces produce four times more carbon than electric arc furnaces, so the conversion is likely to accelerate as China increases its recycling targets in scrap steel. In five years, for example, there will be a 30 percent increase in China’s steel recycling target.”
Mongolia is more dependent on coking coal exports than any other country on the planet; 24 percent of total exports consist of coking coal, which directly translates into approximately 10 percent of total government revenue.
“There are a number of suppliers as well - trucking companies, explosives providers, equipment providers – who pay taxes and thus indirectly contribute to government revenue as well,” Tserenraash says. “So the true contribution is substantially larger.”
Teserenraash and Mira Mongolia say they are publicizing this risk to spark a discussion on alternatives for Mongolia.
“There is untapped potential in coal-bed methane, for example,” Tserenraash says. “We could bring in positive exploration and regulatory measures to encourage industry.
If China is reducing coking coal consumption, we could also target new markets such as India; their coking coal consumption is growing. We could also try and penetrate east coast Chinese markets with lower prices and higher quality coking coal.”
Tserenraash also points to several mining-dependent Australian states, that are looking to develop critical mineral industries and other forms of mining income.
“We don’t have the answer yet,” Tserenraash says. “But we need the government and the market to think about it now, because it could become a huge issue in the future.”
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