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Growth of steel production and demand for coking coal in Mongolia

Growth of steel production and demand for coking coal in Mongolia

Globally, the steel industry, a marvel of industry, has been hailed as the eternal engine of the economy. Coking coal is the main raw material for steel production. One ton of steel requires 1.5 tons of iron ore and 0.5 tons of coke or 0.75 tons of metallurgical coal. This time, in the World Economy section, we highlight information on steel production and the state of coking coal.

China is a major producer of coking coal for steel production. In other words, China produces 50 percent of the world’s steel and its demand is from its southern neighbor.

Global steel production reached 750,000 tons in 1996, slowed during the Asian crisis of 1997-1998, and has continued to rise since then, declining in 2008-2009 due to the global financial crisis. Since then, steel production has slowed in 2015-2016 and has been growing steadily since 2017 as China adjusts its economic policies.

According to statistics, in 2019 it reached 1.9 billion tons, and in 2020 it will exceed a ton. Steel consumption has increased due to global population and economic growth, and global steel production has almost tripled in the last 25 years.

As 50 percent of the world’s steel is absorbed in the construction sector, the use of steel will continue unless the economy expands and construction continues. Demand for new materials is high as new growth is emerging in China and other Asian countries. Over the past 25 years, China’s urbanization has accelerated, and steel production has increased tenfold in 20 years.

China produced 94.02 million tons of steel in March, the highest level in seven months.

India’s per capita steel production is 10 times lower than China’s. If India’s steel production grows at the rate of China, at least 50 percent, it will absorb all the coking coal sold in the world today.

Analysts believe that the Asia-Pacific region will determine the next 50 years of the world economy. Demand for coking coal has grown as global steel production has grown, and is expected to grow further.

According to Mysteel, coking coal stocks in 110 steel mills in China fell 1.5 percent last week from a week earlier. In the first month of this year, analysts forecast that China’s steel production is expected to grow by 2% in 2021. This raised hopes that coking coal demand and prices would be reasonable.

According to market research, China is expected to import about 60 million tons of coking coal. Mongolia’s coal exports are mainly coking, so we have an opportunity.

Mongolia supplies 7-8 percent of the world’s coking coal and two percent of the total. Economists say Mongolia’s coking coal has advantages in terms of location, but less than Russia.

China’s total coal output fell 0.2 percent in March, according to the National Bureau of Statistics. In the same period last year, 340.76 million tons of coal was mined.

As of today, the price of coking coal in the Chinese domestic market has risen by 6.7 percent. As of May 16, the price of coking coal on the Dalian Commodity Exchange rose to 1,678 yuan ($ 256.94) in May, while the price of iron ore rose to 1,045 yuan ($ 176.5).

Access to Gashuunsukhait-Gantsmod, the main Mongolian-Chinese coal port, has declined sharply since mid-March due to the tightening of Covid-19 precautionary measures. As a result, Mongolia’s coal exports are expected to fall to less than 900,000 tons in April, according to China’s Fengwei Energy News Agency.

Mongolia’s coking coal prices have risen in the region near the Chinese border due to declining coal withdrawals. For instance, the price of high quality raw coking coal imported from Mongolia last week was 1120-1150 yuan per ton, while the price of processed coking coal reached 1400-1450 yuan. That’s up 70 to 110 yuan from a month ago.

According to the General Administration of Customs, in March, Mongolia exported 2.14 million tons of coal. Normally, Mongolia used to be able to export an average of 3-4 million tons of coal a month to China. According to the Ministry of Mining and Heavy Industry, Mongolia exported a total of 6.67 million tonnes of coal in the first quarter, compared to about 7.02 million tonnes as of April 11.

Sources: Xinhua, Fengwey Energy, International Energy Agency