B. DULGUUN: CHANGES TO TRADING REGULATIONS WILL BOOST COAL EXCHANGE ACTIVITY

External factors such as the global economic landscape, commodity restrictions in various countries, and price fluctuations are significantly impacting our nation's economy, at least in the short term. In an interview with B. Dulguun, the Acting CEO of the Mongolian Stock Exchange, we discussed the current demand for minerals, market needs, and the future of trading on the Mining Products Exchange.

By A. Khaliun

CHINESE COMPANIES, FOR INSTANCE, HAVE FACED SIGNIFICANT LOSSES, AMOUNTING TO $250 MILLION, DUE TO UNSOLD COAL

How many tons of minerals, including coal, copper, iron, and fluorspar, have been sold on the Stock Exchange since the start of 2025? What factors have contributed to the recent decline in coal export volumes and prices?

By mid-March 2024, the sales volume of mining products had reached 2.2 trillion MNT. However, as of March 14 this year, sales revenue had dropped to 633 billion MNT, reflecting a three-fold decrease compared to the same period last year. The primary cause of this decline is related to coal sales.

There are several factors including market conditions that influence prices. Firstly, coal prices have dropped by 44% from their peak. Prices are determined by the forces of supply and demand. When demand decreases, prices fall. The primary reason for the decline in demand is the current domestic demand in China, along with reduced demand from steel mills.

As part of China's 14th Five-Year Plan to reduce steel production, coal purchases began to decline in 2025, and the number of Chinese companies participating in stock market trading also decreased. Our neighbour is pursuing a policy of shutting down small steel mills while retaining the larger ones. Additionally, due to the ongoing real estate slump in China for over a year, large-scale infrastructure development and construction projects have also decreased significantly.

Second, U.S. President Donald Trump's tax policies have contributed to an unpredictable global economy. He imposed a 25% tariff on Chinese steel imports, and in response, the Chinese Ministry of Commerce also imposed tariffs on American goods. This has led to uncertainty with no clear end in sight, causing previously planned investments to decline. All this is happening amid the decline in coal prices.

Coal mining in Shanxi Province declined last year but has seen a significant recovery this year. Shanxi is China's leading coal-producing province, and if production increases there, it will compete with our exports. As a result, China's domestic production will rise, while demand will decrease, inevitably leading to a drop in prices.

The third major factor is that Chinese companies, which purchased coal at the peak of prices, are now facing significant losses when reselling it. Due to the price drop, 4 million tons of coal have been stockpiled at the border, making it difficult to sell. Chinese companies actively participating in our Stock Exchange trading have incurred losses of $250 million on unsold coal. If such regulations, which risk causing these losses, remain in place, the number of coal buyers will continue to decrease.

Why are there such large coal stockpiles across the border?

Typically, warehouses maintain a certain amount of stock. However, the significant increase began around July and August last year,, when coal prices dropped significantly. This was because companies, having purchased coal at high prices, were unable to sell it and instead stored it in their warehouses. 

MONGOLIA HAS ACCUMULATED 1.3 TRILLION MNT IN REVENUE DUE TO THE PRICE DIFFERENCE

Despite the external situation, decreasing demand, and falling prices, what opportunities exist for further expansion of coal exchange trading? What are the advantages of selling raw materials on the exchange in the face of such risks?

Mongolia earned 1.3 trillion MNT from the difference between the initial price and the final auction price. This amount is equivalent to the budget required to distribute 100,000 MNT to every child in Mongolia for one year. The advantages of exchange trading are clear in this case. Those who benefit from exchange trading should be grateful to the former ministers who initiated, approved, and implemented the Law on the Mining Products Exchange. 

Another key advantage is transparency. Prior to the Mining Products Exchange, middlemen controlled the process, limiting buyers' options. At times, coal was unavailable for purchase, even when desired. With the launch of coal trading on the exchange, any company willing to take the risk now has the opportunity to participate and make purchases. Buyers greatly value this increased openness.

On the other hand, coal theft has stopped. Previously, only those with many connections could buy coal. Now, that has changed, and it means the highest bidder will secure the commodity. Recently, there has been talk that "trading on the exchange is wrong," which is a harmful idea that could lead to more theft in this sector. I hope politicians refrain from making such statements. We aim to attract long-term participants to the trade.

The government has decided to establish a Working Group on Export Promotion, led by the Minister of Finance, with representatives from the Stock Exchange. What will your responsibilities be?

When introducing something new, it's rarely perfect, and improvements are often necessary along the way. When exchange trading first began, contracts were made to supply commodities for up to six months or one year at the price initially agreed upon at the auction. As a result, many customers incurred losses.

For example, coal was initially sold at $160 per ton, but today the price is below $110. This means buyers are incurring losses of $50-60 per ton. If this situation persists, no one will want to enter into long-term purchase agreements.

So, how will this issue be resolved?

The revised regulations for trading on the Mining Products Exchange have been approved and came into effect on March 19, 2025.

Updated regulations for trading and making payments for mining products have been introduced to buyers.

We believe that adding a clause to the regulation, which adjusts the initial price in the contract based on the market price index, will encourage growth in coal trading. As a result, companies looking to enter into long-term contracts will be more inclined to participate in exchange trading.

However, the current situation is such that companies are hesitant to participate in the trading due to concerns about the risks if coal prices fall again. We aim to address this issue and attract long-term participants to the trade.

This way, ultimately, all parties involved will benefit.

What issues have you focused on since your appointment as the Director of the Stock Exchange?

We agreed to introduce a clause in the agreement stating that when the price of coal in the market falls, the sales price will decrease accordingly, and if it rises, the sales price will increase as well. A month after I was appointed as the Executive Director of the Stock Exchange, a joint meeting was held on February 24 with the Ministry of Industry and Mineral Resources, the Ministry of Finance, the Ministry of Economy and Development of Mongolia, the General Department of Customs, and the

General Department of Taxation. We submitted an official letter to the organizations listed above, requesting their feedback on proposed changes to the regulations. We received and incorporated feedback from the ministries and had the revised regulations approved during the Stock Exchange Board of Directors meeting. The regulations were also approved by the Financial Regulatory Commission and took effect on March 19. In my view, this marks the first of four phases of reform for the Mining Products Exchange. The fixed price in the contract with the buyer was a key issue, so we prioritized addressing it first. The revised regulation is now in effect.

Next, there are issues related to the weight and quality of the product that create uncertainty for buyers and affect their participation in the trade. We plan to address the quality issues between June and September.

In the third phase, conditions will be established for the acceptance of products across the border in accordance with international standards. Additionally, opportunities will be created for foreign countries to participate in the exchange trading of Mongolian mining products. To achieve this, it will be necessary to develop technological solutions and establish infrastructure in areas such as system technology, equipment upgrades, connectivity, and security, which may take up to a year, or possibly two.

A TOTAL OF 60,000 TONS OF COPPER ARE PLANNED TO BE TRADED ON THE EXCHANGE IN 2025

What volume of products are mining companies proposing to sell on the exchange? What is the current level of trading on the Mining Products Exchange?

Our suppliers are ready to sell their products. However, due to the price decline, the coal stockpiles across the border, and the significant losses incurred by companies that actively purchased minerals through exchange trading, they are currently on hold.

Sixty percent of the iron ore planned for trading in 2025, totaling 2 million tons, has already been sold in the first two months.

The quick sales are driven by the risk of a future decline in iron ore prices. As a result, selling the iron ore while prices remain high is advantageous for our country. If we proceed with trading iron ore and coal as planned, the sales of these two commodities could make up the majority of our export revenue.

What is the current level of copper sales?

It is planned to sell 60,000 tons of copper on the exchange in 2025, with 5,000 tons already sold in February. A European company has entered the trade and made a purchase. I believe that copper trading is progressing well, and there are no issues at the moment.

There are concerns that the state budget will come under pressure due to the fall in coal prices and reduced demand. Can Mongolia remain a strong competitor in the coal market? Do we have a chance to attract new customers and buyers?

Mongolia competes with Russia, Australia, and Indonesia in the coal market. If we focus on how to gain an advantage in this competition, and possibly leverage the current price drop, we could become a larger player in the Chinese coal import market in the future.

For example, the railway connection between the Gashuunsukhait and Gantsmod border crossings will provide the first advantage. In the next stage, building a railway connection between Khangi and Mandal border points as well as constructing the Nariinsukhait railway will reduce transportation costs, making it easier for metallurgical plants in China's Inner Mongolia Autonomous Region to purchase our products.

The railway connection between Gashuunsukhait and Gantsmod, which was approved through an intergovernmental agreement, will have a significant positive impact on commodity exports.

The construction of the railway will boost Mongolia's annual coal export volume. Export capacity is expected to increase by at least 15 million tons per year, providing a significant benefit to our economy.

How will Trump's tariffs affect the economy of our main trading partner, China? And how will this impact Mongolia?

"Trump's tariffs" will not only raise production costs in the U.S. but also drive-up inflation, diminishing America's competitiveness. This will likely lead to a reduction in American imports that, in turn, will negatively impact the Chinese economy.

The study concluded that the Chinese economic growth would shrink by 0.2% due to Trump's tariffs. While 0.2% may seem small for a household, it is a significant figure for an economy worth ten of trillions of dollars. As a result, it negatively impacts our country. However, if Mongolia can increase exports of its main commodities-coal and iron ore- and actively compete in the minerals market without delay, there is potential to navigate this period with minimal losses.

Is the falling share price of Mongolian Mining Corporation, the parent company of Energy Resources, on the Hong Kong Stock Exchange linked to the government's decision to take over 34% of strategic deposits?

As of today, Stock Exchange shares have also fallen. As mining product trading declines, the exchange's operating fees decrease. With profits shrinking, stock prices also drop to some extent. Similarly, when coal prices drop. the shares of coal-selling companies also decrease.

One point to emphasize here is that some statements made by politicians can negatively impact investments and markets. You can't achieve the right goals through wrong words and actions. Personally, I believe that the end does not automatically justify the means.