May 2014
We owe the clever phrase to L.Bayaraakhuu, CEO of the Mongolian Association of Metal Producers, who recently said his organisation hoped the industry would be able to revive itself in the ‘break time’ that appears to be almost upon us.
Who is to announce when break time begins? The answer is: Chinese steel mills, now eager to buy semi-processed raw material. We have to remember that most of China’s smaller steel plants have been shut down in a bid to reduce air pollution, and only about 20 big steel producers are left – all State-owned.
So far it has been the practice of trading companies in our southern neighbor to buy Mongolian iron ore for cheap and sell them to steel plants for a handy profit. Now maybe the time has come for Mongolian producers to break the pernicious cycle that works so blatantly and unfairly against their interests.
Our producers sell dry magnetic iron ore concentrate to Chinese buyers for $50 per ton. The price for the wet concentrate is $90/ton. If iron ore pellets are produced, they will fetch $150, provided they are sold directly to the steel mills, bypassing the middleman. However, it is easier said than done. Mongolian metal producers will have to overcome many hurdles before the seemingly easy job of making a direct deal with a steel plant is done. This issue of the Mongolian Mining Journal gives a detailed account of the obstacles to be faced by the country’s iron miners.
First, there are interviews, in which iron producers, both domestic and foreign investment based, talk frankly about how and why their working environment is so disheartening.
It is difficult to believe that it costs $28 to transport one ton of Mongolian iron concentrate to Ereen, while an Australian producer pays $3-$5/ton to move the ore from his country’s western coast all the way to Tianjin port. That is not the only burden on our competitiveness. The railways charge the same rates for transporting such dissimilar freight as iron ore, coal and copper. No wonder iron and copper account for 40% of the total revenue of Ulaanbaatar Railway JSC. With such friends, who needs enemies?
One advantage of transporting pellets and wet concentrate would be that their weight would not include that of the soil sticking to the ore, but it needs fresh investment to produce either. Where will the money come from? The miner can try to sell the ore for a little higher price, or seek a loan. State support is of crucial importance in both options. Member companies of the Mongolian Association of Metal Producers are excited about the possibility of direct trade with the Chinese end-buyer and want the state to give their efforts a big push with a one-window policy.
The Mongolian metal industry will find its feet if it can actually utilize the break time offered by China’s ecological concerns. But for this, it needs state support, as also collaboration among the companies in the sector. Its success will take us a big step forward towards having a steel plant in the country, with enough capacity to meet domestic demand.
At present, Mongolia is not among countries with the largest iron ore reserves, such as Australia, Brazil, Russia, and China. Our estimated reserve is one billion tons, and total resource 14 billion tons. But fresh exploration can raise both figures considerably higher. In any case, our poor infrastructural capacity will limit exports to 10 million tons per year, so those who argue that ‘our iron ore reserve is small, it must not be exhausted’ are not very accurate.
The iron industry is one source of export revenue and will also be the foundation of domestic steel production. A great opportunity beckons, in the name of ‘break time’. Truly, it could be a time to make or break.