China’s sanction on DPRK to determine Mongolia’s coking coal export

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Experts expect the coking coal demand to shrink in the following years

Coking coal formed around 70 percent of Mongolia's total coal export last year. While coal exports was 18.2 million tons in 2010, the number increased to 33.4 million tons in 2017. As for this year, the Mineral Resources and Petroleum Agency of Mongolia (MRPAM) estimates to export 52.5 million tons of coking coal in 2018 and 51.5 million tons in 2020. Coking coal mined from major deposits, such as Tavantolgoi, Ukhaakhudag, Nariin Sukhait, Ovoot Tolgoi and Khuren Tolgoi, are exported to a single market, to People’s Republic of China (PRC) mainly for steel production. The authorities of the PRC has set a goal to reduce air pollution, steel production and close old factories. Within the frame, the PRC plans to reduce steel production by 100- 150 million tons by 2020. The policy immediately took effect as the PRC cut its steel production by 50 million tons and coal by 150 million tons last year. As for this year, the initial plan is to diminish steel output by 50 million tons. Exports highlighted that this will shrink coking coal imports and escalate competition for coal China’s sanction on DPRK to determine Mongolia’s coking coal export exporters. Furthermore, the main coal importing ports have started increasing their inventories.

Mongolia's coal export increases regardless of PRC's policy to reduce steel production
Accordingly, experts expect the coking coal demand to shrink in the following years due to the PRC’s policy. However, MRPAM informed that it will not directly affect Mongolia’s coking coal export. The coal export increased by 7.6 thousand tons last year, regardless of PRC’s reduction to steel production. The main reason to the increase was the U.N sanction on the nuclear test of the Democratic People’s Republic of Korea (DPRK). China imported a total of 20 million tons of coal from DPRK in 2016; however, the sanction on DPRK ceased coal imports in April 2017. Therefore, Mongolia’s export will According to the Study of Private Sector Perceptions of Corruption Survey 2017 of the Asia Foundation, around 60 percent of Mongolian private entities are dissatisfied with the business environment due to corruption. While the satisfied entities were 27.2 percent in 2012, the number drastically reduced by 2.5 On March 9, Entree Resources LL C, a TSE listed Canadian company, announced its 2017 fiscal year results and reviewed corporate highlights. According to the updated technical report of the Entree Resources and Oyu Tolgoi joint venture project that was released in January of this year, it is estimated that Entree Resources expects to gain within its investment US D 2.1 billion in undiscounted before-tax cash flow just from the Hugo North extension over the first 33 years of production. In 2017, Entree Resources closed a non-brokered private placement of 18.5 million units of the company for gross proceeds of CAD 7.6 million. The company’s operating loss was US D 3.1 million, 3 percent higher than the comparative period in 2016. In addition, the report demonstrated that at December end of 2017, cash on hand was US D 7.1 million. For 2018, the company plans The number of individuals and entities opening new deposit accounts at the Mongolian Central Securities Depository (MCSD) increased by 2.5 percent compared to the previous month, exceeding 10 thousand. This is highest indicator since 2016, informed the MCSD. In terms of structures, around 99.8 percent of remain stable unless the PRC removes sanction on DPRK, noted MRPAM. In addition, the PRC’s policy creates M&A opportunities among the major steel producers and allow them to operate at full capacity, stabilizing the coking coal demand. Nonetheless, experts expect the PRC’s steel production to decline in the long-term.