Good read ... Mongolia vs China Mongolian coal is uncompetitive in the Chinese market
Today 9 hours 53 minutes
Wang XiaoLong, Chinese ambassador to Mongolia: Mongolian coal industry structure is uncompetitive in the Chinese market
Q:-Mongolian coal export to China has dropped by half compared to last year; what do you suggest Mongolia does to bring the market up?
The Chinese coal market has weakened significantly during the past months. On one hand the Chinese coal market is much liberalized, it is the most open market among commodity markets. On the other hand there is a great synergy between the regional coal market and the global coal market beyond China. And most importantly, there have been years of market reform introduced by the Chinese government.
The global seaborn coal trade, the bulk of which is driven by the Asia pacific region, is dominated by two countries; China and India. What happens in the Chinese market is both cause and reflection of the wider market.
The Chinese economy has slowed slightly; part of this is because of policy introduced by the government to promote rebalancing. Liberalization has progressed significantly. China is moving towards reliance on domestic consumption instead of investments and exports, as in the past.
This affects the demand of coal and other energy commodities.
Therefore Mongolian coal exported to the Chinese market is affected. This is more than a cyclical issue; I would say it is structural because if you look at the supply and demand in the Asia Pacific market you see two distinct trends. One is increasing productive capacity in both Australia and Indonesia where years of investment have led to more new mines being opened. There is also a huge oversupply of both thermal and metallurgical coal from US as a result of its switch to shale gas and oil. When they arrive in Chinese ports you’ll be surprised at how cheap this coal can be sold for. Typically around 60 dollars. Why is it so cheap? The extraction cost is extremely low because of the increasing competition and the shipment across ocean for each ton of US coal is less than 20 dollars. Also there are tariffs, taxes etc, but they are still able to sell their coal at less than 60 dollars, making it very competitive.
What it means to Mongolian suppliers, because of your cost structure, is that Mongolian coal is no longer very competitive in Chinese markets, to be honest. The long term trend and long term demand exists in China. Industrialization and urbanization in China are not yet half way through and there is still a long way to go, so China will have a huge appetite for all kinds of commodities; coal, either thermal or coking, and copper concentrate. Having said that, Mongolia must make itself more competitive because there are other suppliers trying to sell in the Chinese market.
Q:-Can you tell us how to build a good relationship with China’s biggest coal consuming provinces in order to supply coal in the longer term?
Mongolian suppliers have either been directly approached or have reached out extensively to buyers in China. Buyers and investors would place a premium on stability and predictability. Most Chinese make partnerships in Mongolia not for speculative purposes and they are not here for quick bucks, they are mostly here for the long term. As a country, as far as policy is concerned, we are looking for a long term partnership with Mongolia at the government and business levels as well.
So we put it a lot of premium on stability and we will build long term partnerships with Mongolian businesses. If you want to make business and relationships with China then there must be the basic elements of trust.
Currently only Winsway buys all coal from Mongolia?
Winsway is one of many traders and there are at least fifty coal traders in the border trade. This is a highly diversified market. I would suggest reaching end users in China as much as possible.
This is part of becoming more competitive against other suppliers. If you look at the Mongolian coal industry and the Australian coal industry you can see the difference. Geographically Mongolia is closer but most coal trade takes place through several ports, for example Qinhuangdao and Chinese industries buy Australian coal because it is very cheap. Believe me or not, there is no policy in place discouraging traders to buy Mongolian coal.
We are willing to support our businesses to work together to develop this industry, but again you have to put in place a policy framework to enable this to happen.
Q:-What do you think why Chalco dropped the Southgobi deal?
I understand there is an ongoing investigation into Southgobi Sands. I think that investigation has largely made the proposed acquisition of Southgobi Resources by Chalco meaningless. Besides, there was a new law adopted, widely perceived, true or not, to target some Chinese companies in reaction to the proposed acquisition by Chalco of Southgobi. I think this explains why Chalco dropped the deal.
Also I think this is a typical case demonstrating the basis of our cooperation. We see us as neighbours, partners, friends for mutual benefit. China is the fastest growing emerging market in the world. Mongolia is one of the biggest commodity suppliers and a next door neighbour. There are plenty of other countries’ that want to get a piece of Chinese development. Mongolia is uniquely placed to take advantage of the opportunities presented by China. You have the geography and natural resources endowment. What you need, I think, is the right policy framework and legislative environment to enable cooperation to flourish to benefit both countries.
Q:-There is no secret that to most Mongolian’s China is thought of with hate and fear instead of seeing each other as a partners or neighbours.
Look at the history of the relationship between China & Mongolia; friendship and cooperation is a theme through the best part of it.
Indeed the trust issue is something that has to be looked at very seriously. My state counsellor Dai Bingguo visited Mongolia in August and he tackled this issue upfront because we know there is this element of distrust in some Mongolians. I don’t say those fears, distrust and concerns are groundless but they are not necessary because we have made a clear commitment to respect the sovereignty, independence, and territorial integrity of Mongolia.
If you allow that element of mistrust to grow and get in the way of our cooperation it is against our common interest. And Mongolia will lose time to develop.
Q:-Mongolia adopted a new law to regulate foreign investment after Chalco’s deal; how does it sound to you as a Chinese person?
On one hand I totally understand that Mongolia wants to improve the regulation of foreign investment in the country.
On the other hand, what the law actually aims for is bit of disappointment because it is designed to restrict foreign investment, particularly from us.
That’s discrimination. Also it makes Mongolia look inconsistent on the international platform. It is not beneficial for our bilateral relations.
Q:-What do you think of the OT power supply agreement that took one and half years to link with the copper concentrate supply agreement?
The power supply discussion took place on several intergovernmental levels. We made it clear that we tried our best to help Mongolia to solve this issue. We know that OT is the biggest industrial & mining project and once off the ground the production will be a significant contribution to country’s economy. We know it is important for Mongolia and we want help Mongolia solve the power issue. This commitment was repeated by my prime minister and other top leaders. This issue had to do with a lot of complicated commercial terms and took longer than was expected. But we are glad that through the efforts on both sides, it was finally resolved and the agreement was signed weeks ago.
We understand that power supply agreement needed to consider with copper concentration agreement?
I heard that OT signed concentrate supply contracts with some Chinese smelters, for example in Bayannuur and others in Inner Mongolia and other parts of China. I believe transactions are based on international market prices.
Q:-What about the Chinese interest to participate Mongolia’s new railway projects?
Weeks ago the Mongolian government made a decision on the construction of railways but we are still trying to find out what the implications are. The railway connection is a priority of our bilateral cooperation. The lack of railway connections will become the biggest bottleneck to the growth of bilateral trade.
We certainly support Chinese businesses in construction and operation in the new Mongolian railway projects. But it depends on the policy framework to be adopted by the Mongolian government.
Q:-Do you think Shenhua is still interested in Tavantolgoi’s West Tsankhi’s developer?
The Chinese government wants Shenhua’s participation for the development of the western block of TT. As for the modality for cooperation, first and foremost it should be commercially viable, secondly it should reflect different comparative advantages of particular players. Different players can bring different strengths to the table. Finally, we hope that the formula will lead itself towards long term sustainability of the project and of the Mongolian economy.
What we are looking for is a long term relationship and partnership with Mongolia.
What are the latest Chinese investment updates in your knowledge?
I think Chinese involvement will play a huge role in Mongolia’s economic growth. Again let me emphasize that most Chinese businesses are here for the long term not just a quick buck.
News.mn: Thank you for your time
By Khaliun Bayartsogt