Hopes for Mongolian coal soar as China reaches for blue sky

3th of 10, 2018
In his speech at Coal Mongolia 2018, Yang Xianfeng, Director General of the Economic Operations Department of the China National Coal Association, asserted that the Blue Sky programme in China is opening up vast opportunities for Mongolia’s coal exporters and hoped they would make full use of these. 

The peak phase of Chinese steel production ended at the beginning of 2015, creating the need to recalibrate supply and demand in the steel, metallurgy and coal sectors, all three of which had operated to full capacity and beyond it during the super cycle of the minerals market. China began restructuring and adopting policies aimed at reducing excess capacity and to close down less efficient factories. Along with these came measures calling for green development, to be achieved by upgrading production methods and radically reducing greenhouse gas emission. If 2016 saw the policy finalised, 2017 was the year when rules and regulations were put in place and their strict enforcement has become the standard in 2018. This is the Blue Sky programme, formally approved in last June, which, as it brings down the level of pollution throughout China, is expected to have a significant impact on the export of Mongolian minerals, especially coal. China’s three-year action plan to “protect the blue sky” has much to do with the coal and coke market, and this should offer new opportunities for coal from Mongolia, also known as the “Land of Eternal Blue Sky” (Munkh Khukh Tengriin Oron).  

China seems well on the way to achieving its three major avowed goals of reducing the capacity of outdated methods of production, protecting the environment, and ensuring occupational safety. The actions the Government plans to take over the coming three years will surely halt environmental degradation and air pollution, but at the same time it will discourage excessive industrial production. 

The ambitious programme will focus on the most polluted provinces – Beijing, Tianjin and Hebei -- and also on what are called the “2+26” cities. These include 11 cities of the Fenwei region -- Lvliang, Jinzhong, Yuncheng of Shanxi province, Luoyang and Sanmenxia  of Henan province, Xi`an, Xianyang, Baoji, Tongchuan, Weinan and Yangling Demonstration Zone of Shaanxi  province -- as also Shanghai, Jiangsu, Zhejiang and Anhui of Yangtze  Delta River area. 

All steel, metallurgy and coal units in the targeted regions have been ordered to abandon old technologies and reduce emissions. Hebei province, the largest steel producing area, will reduce production of steel, coke, and cement by 40 million tonnes, 10 million tonnes, and 5 million tonnes respectively, while Jansu province is likely to shut down 17.5 million tonnes of steel production capacity.

Less production will mean reduced power consumption, and if plants are shut down or produce considerably less, that will mean a restructuring of the transportation system. Altogether, inefficient use of energy will go down by 58%, and road transport of coal will be completely stopped by 2020. Steel and coke production in the main industrial cluster of Hebei and seaside provinces will see a dramatic reduction. 

As production in coastal areas is restricted, some of it has started moving to provinces bordering Mongolia and more plants might do so. G.Battsengel, Executive Director of Energy Resources, reminded his audience at Coal Mongolia that last year he had said the fact of moving steel production from the coast and stringent anti-pollution measures would be a blessing for Mongolian coal exporters. E.Odjargal’s report on Coal Mongolia 2018 has more on this. The environmental protection policies that limit production of steel and coke in the south and the east of China have brought the market closer to Mongolia, promising benefits to its coal sector. 

Extensive and aggressive checks on practices of coal extraction and processing, and on methods of steel and metallurgical production have led to closure of plants, and strict enforcement of occupational safety and environmental regulations has meant reduced output. 
So has closure of inefficient mines with outdated technologies. 

Those who remain in business have no alternative to purchasing higher quality raw material. This should result in an increased demand for Mongolia’s high quality coking coal. Low-sulfur coal should command a higher price. 

Views on the competitive advantages and opportunities can be found in this issue’s interviews with Sarah Liu, Vice President of Fenwei Energy Information Services Co., and Pralabh Bhargava, Senior Analyst at Asia-Pacific Mining & Metals Fundamentals Research of Wood Mackenzie Group. Some clear signs have started emerging that both demand for and price of high quality coking coal, which is what Mongolia has in plenty, will increase and analysts expect things to be stable in the coming two years. Some are more positive and see an increase in both. 

There is no question that developments in China create opportunities here but how to make best use of them depends on Mongolians. In order to retain, then reinforce, and then raise our present position, we have to make progress in areas such as transport, logistics and movement at border ports. China may at best unlock the doors, it is for Mongolia to push and keep them open. 

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