Shenhua Group set to import 1bn tonnes of coal from Mongolia

China’s Shenhua Group has signed an agreement with three Mongolian coal companies to buy up to 1 billion tonnes of coal over the next 20 years.

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Mongolian Mining Corp (MMC), Erdenes Tavan Tolgoi and Tavan Tolgoi JSC will supply “predominantly coking coal” to the Chinese conglomerate, subject to production capacity, according to a statement from MMC released on Tuesday October 29.

Shenhua and the three Mongolian coal miners have also signed a separate memorandum of understanding with the Mongolian Railway to build a rail line connecting the Gashuun Sukhait border and the Ganqimaodu border crossing in China.

“The company believes that the new port railway will make a significant contribution in streamlining the flow of coal exports from Mongolia to China with potential cost savings, and to therefore improve the competitiveness of Mongolian coal products.

“Moreover, it will present an opportunity for Mongolian coal companies to further improve their access to markets of inland China and to seaborne markets and to do so on better terms,” MMC ceo Battsengel Gotov said in the statement.

The Mongolian-Chinese consortium will be responsible for project financing and construction of the railway, which will be integrated with the Ukhaa Khudag-Gashuun Sukhait line in Mongolia and Ganqimaodu-Baotou line in China.

Currently, about 80% of coal exports from Mongolia are coking coal, according to UOB Kay Hian senior analyst Helen Lau.

“If this ratio is maintained, it implies that future Mongolian coking coal exports to China will be 40 million tpy.

“This huge amount of coking coal imports from Mongolia will potentially squeeze Australia, Canada and Russia out of the Chinese coking coal market,” she said in a research note.

China imported 9.7 million tonnes of coking coal from Mongolia during the first nine months of 2013, down 24.2% from the same period last year, as miners in the landlocked country suffer the effects of low prices.

Mongolia delivered 19 million tonnes of coking coal to China in the whole of 2012, according to Chinese customs data.