April 2013
What you see is an inverse proportional chart that gives an unusual message. It shows that even with rising demand, supply decreased.
To be more clear, the big gap is between demand for coal in China and the supply from Mongolia. Mongolian coal export has been falling, and finally it has reached the level of 2009. That was the year when some major deposits in Mongolia were opened up and saw the start of soil removal work. Ordinarily, this should have led to more production and more export but what happened was exactly the reverse. Our politics, instead of supporting the coal sector, actually hindered its natural growth, and the consequences are seen in the chart. Wrong policies kept pulling the coal sector back, not allowing it to follow market trends.
This issue of the Mongolian Mining Journal contains interviews with senior managers of several major coal producers on the current situation in the coal market. Their despondency is in marked contrast to their own mood expressed in similar interviews in July, 2011, when the volume of coal exported to China reached an all-time high, making Mongolia the largest exporter of coal to that country. With Mongolia returning to its 2009 performance, it is now No.5 on that list. Customs data in February reveal that the coal Mongolia exported met only 6 percent of China’s demand.
In their interviews, the coal professionals discuss the factors leading to the crisis and also describe what they think lies ahead for their companies in 2013. All agree that the scenario is bleak, not just for the exporting companies but for the national economy as well. Export revenue in the first two months of this year has dropped 50 percent year on year. The whole economy suffers from a lack of cash flow at a time when the year’s active business season starts in Mongolia. The authorities blame everything on a “drop in China’s demand”. The truth, however, as you can see from the chart, is that China’s demand recovered and reached a normal level back in October, 2012.
Prime Minister N.Altankhuyag dreams of creating a “Mongolian brand” in the world market. He promised at the Economic Forum 2013 that most animal husbandry products will soon be brought under such a brand. O.Chuluunbat, Deputy Minister of Economic Development, has a view far more realistic. He feels the priority should be to create a demand for the ‘Mongolian brand’ in the coal and copper markets in China. This brand must have its own and in violate niche in the biggest market of the world. It is a dream that can be made reality in the near future. Politicians are decelerating the speed of the development train of Mongolia simply because they don’t want to see this opportunity.
The Reform Government is finding it difficult to balance the books. The State Budget will continue to be cash-starved until output from Oyu Tolgoi begins to be exported. The Government, however, shows no in clination to change its ways, so much so that thePresident has had to speak bluntly. What he recently told the Government can be summarised in one sentence: “Give business the chance to work in a stable environment.” Ts.Elbegdorj repeated this idea several times during his speech at the opening of the State Great Khural’s Spring session. His reference to some businesses as being “somebody’s life’s dreams” and “requiring very long planning” was clearly aimed at some ministers who capriciously stalled major mining projects planned and prepared by Mongolian companies by requiring them to submit fresh Technical and Economic Feasibility Studies.
The mineral and industrial policy of the Reform Government is not in good health, and the virus thrives on narrow politics. The President has made the right diagnosis, and prescribed the right regimen. If the course of treatment is not followed, the virus may spread, and lead to political crisis.