S.Bold-Erdene
One of Mongolia’s gest coking coal miner Energy Resources re-commenced its extraction in Ukhaa Khudag mine in early December. The company had halted its extraction and coal processing, and announced layoffs with 60 percent of full salaries paid in last July. In September, the company stopped its coal exports and announced layoffs covering approximately 1700 staff with no salary. Since 2013 when the coking coal market started to fall, the company’s profits turned to losses, but it did not limit its operations and did not cut worker numbers at that time.
According to the interim report of the company, ER exported one million tons of coking coal at the processed coal’s average selling price of US$64.1/ton. In 2014, it had exported 5.4 million tons of coking coal, of which 3.4 million tons was processed coal with an average selling price of US$83.5/ton. As the price of coking coal continued to decrease, the company could not compensate for its extraction expenditure and eventually extraction and export had to be stopped.
Due to Chinese economic growth slowdown, that country’s steel demand has been shrinking, followed by a decrease in its coking coal consumption. In the first half of 2015, Chinese steel consumption decreased by 4.7 percent and reached 357 million tons, while its steel production shrunk by 1.3 percent and reached 410 million tons. At the same time, the country’s coking coal consumption decreased by 14 percent to 265.9 million tons, coke demand decreased by 2.6%, and coke production fell by 3.4 percent. Since the coking coal consumption decreased, China’s commodity imports also decreased by 30 percent on a year-on-year basis and reached 21.6 million tons, of which 10.9 million tons were shipped from Australia, 6.3 million tons were imported from Mongolia, according to the Chinese Customs General Administration.
Energy Resources renewed the contract with its contractor Thiess Mongolia (formerly called Leighton). According to a knowledgeable source, with the extension of the contractor’s agreement, ER will have the capability to compensate for its operational expenditure but will not make a profit. ER will not operate at full capacity, and will cut some of its executives and approximately 30% of its workers. Even without operating at full capacity and with large job layoffs, the company’s approach to continue its extraction and exports is important for the Mongolian economy, including through its tax contributions to the state budget and maintenance of 1400 jobs.