Welcome to our guide on the energy and commodities markets driving the global economy. Today, senior reporter Alfred Cang explores China’s rising coal imports from Mongolia, which now supply the world’s largest steel industry. If you’d like to receive this newsletter, you can sign up here.
Chinese steel mills are increasingly sourcing coal from Mongolia, surpassing Australia as their leading supplier. This shift is driven by lower prices and closer proximity, benefiting Mongolia’s capital, Ulaanbaatar. It also highlights ongoing challenges in China’s industrial sector.
The surge in coal imports began during a diplomatic conflict between China and Australia in 2020. As China’s economy struggled to recover from the pandemic, its coal purchases from Mongolia grew significantly, making up over half of its steelmaking coal imports last year.
Even as relations with Australia improved, strong demand from countries like India kept Australian coal prices high, pushing Chinese steelmakers to seek alternatives.
This year, China’s economic outlook remains bleak, with little sign of recovery. Despite recent stimulus efforts, the industrial sector continues to face challenges, and the property market remains stagnant. This situation makes Mongolia’s cheaper metallurgical coal more attractive, as it is mined in open pits and transported easily to China’s northern border.
Mongolian coal is low in sulfur and ash, meeting the delivery standards required by the Dalian Commodity Exchange’s futures contracts. This makes it a viable option for traders.
In terms of logistics, Mongolian coal is more accessible than Russian coal, which requires longer transportation routes.
For Mongolia, this boom translates into economic growth. The Asian Development Bank predicts a 5.5% growth rate for the country in 2024 and 6% in 2025, driven in part by the mining sector. Mongolia’s coal export forecast has risen to 78 million tons this year, with an estimate of 83 million tons for 2025.
However, rising coal volumes also mean increasing emissions, as long as coal remains part of the energy mix. Looking ahead to 2025, unless China’s economic situation improves, coal prices are likely to decline.
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