Cleaner and greener: moving away from coal in 2018

Author Andrew Hayley

Aug 24, 2018 4:05:06 PM / Mining, copper, coal, China, Renewable Energy

While coal was Mongolia’s top performing commodity in 2017, Mongolia observers predict copper to steal the show this year. As a resource-based and export-focused economy, the outlook for Mongolia is strongly influenced by global market movements. These look set to crown copper as the country’s top earner.

Two important trends underpin this. The first is Xi Jinping’s environmental agenda, which will temper China’s voracious appetite for coal in the medium term. The second is a global shift toward green technology, which will substantially boost global copper demand into the long term.


Xi is acutely aware of how politically sensitive an issue pollution could become. As a result, Beijing is enforcing increasingly strict air quality restrictions on Chinese cities. In the short term, this actually benefited the Mongolian coal industry - the decision to limit a number of mines in north China to operating only 276 days per year tightened domestic supply and was a big part of coal’s strong performance in 2017. However, cutting China’s coal consumption remains at the core of this initiative. Last year, China took 65GW of coal fired capacity offline. Authorities aim to raise this to 109GW by 2020. This will be a gradual process, since heavy industry remains integral to China’s economic health. Nonetheless, it makes it unlikely that Mongolian coal’s star performance in 2017 will be replicated in the coming years.

 

Mongolia mining coal sales export

Coal mining, sales and export (Mineral Resources and Petroleum Authority of Mongolia Annual Report 2016)

 

The flipside of these ambitions is that Chinese demand for copper is likely to grow. The government’s ‘Made in China 2025’ agenda is a vision for China as a hi-tech, green energy powerhouse, in which industries such as robotics and clean energy vehicles take centre stage. The country is expected to build at least 3 million electric vehicle charging ports by 2030. This process of modernising China’s industrial base will be copper intensive, and it is anticipated that Chinese demand for copper will have increased by 232,000 tonnes by 2025. This is good news for Oyu Tolgoi’s, which is supposed to hit peak capacity by that time. Moreover, China is slashing its imports of scrap metals, with the aim of mitigating the environmental damage of the country’s $6.5 billion scrap processing trade. This will likely drive up import demand for raw copper. Mongolia is well placed to meet this.

 

However, this process is not limited to China - it is a global phenomenon that will have long term implications for the copper industry. Some analysts expect global copper demand to increase by as much as 341% by 2050, as technologies such as electric cars become increasingly prevalent. This undoubtedly bodes extremely well for Mongolia in the longer term. But even in the medium term, global trends remain favourable to the Mongolian copper industry. Progress and technological uptake in emerging economies is tipped to support copper prices, as global demand for consumer electronics rises with disposable incomes.

Whilst these global trends are favorable to the development of this key industry, Mongolia’s resources will need prudent management for the country to really capitalise on them. In the past, resource nationalism has clouded the vision of policy makers in Ulaanbaatar and soured relationships with their international partners. Disputes over tax revenues from Oyu Tolgoi have proven to be a stumbling block in the past. A recent spat between the government and the operator Rio Tinto saw progress on the megaproject stall for two years.

However, with an IMF bailout under their belt and an ambitious reform program in the pipeline, the current administration looks set to avoid these pitfalls. Investors have a strong case to be optimistic about these developments.

 

If you would like more information or to discuss this further, please contact info@mining-mongolia.com

 

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