On February 17, the Mongolian Stock Exchange (MSE) held a press conference on the challenges in coal trading, as coal prices have plummeted by 35 percent compared to last year. Acting CEO of MSE B.Dulguun who assumed the role following the Board of Directors’ resolution last month addressed economic journalists regarding the current state of coal trading and the issues facing the Mining Exchange.
Since coal began trading on the MSE, it has become clear to participants who they are selling to and at what price, offering greater transparency compared to previous practices where coal sales were controlled by the directors of Erdenes Tavan Tolgoi JSC, often at prices below the market rate. However, despite these efforts at transparency, coal prices have sharply dropped, with the average price now hovering around 100 USD per ton, a significant decline from last year’s price of 160 USD. As a result, buyers have reduced their orders, causing a slowdown in trading activity.
B.Dulguun noted that coal trading saw a brief surge in late 2023 and early 2024 when prices were high, and more than four million tons of coal were sold in a single month. However, with the decline in prices, trading activity has dwindled, particularly in the second half of 2024, when trading volume fell by threefold.
The decrease in coal prices has caused companies to hold onto their stockpiled coal, with some planning to sell it back once prices rise again. The acting CEO explained that coal stored in warehouses does not incur losses on the balance sheet, but once it is removed and sold at a lower price, companies face a 60 USD-per-ton loss. In fact, many buyers who purchased coal for 160 USD per ton have stopped placing new orders, as they now have significant reserves across the border.
Another contributing factor to the slowdown in trading is the payment system. Currently, companies are required to pay 10 percent upfront as a deposit to the exchange, with the remaining 90 percent paid directly to the seller. This means that buyers must pay the full amount for coal upfront, even before it is delivered, which has led to some companies hesitating to enter the market due to risks related to fluctuating prices and delayed deliveries.
He also pointed out that the current contract standards on the MSE are not as sophisticated as those on other exchanges, which has caused delivery-related issues. On other exchanges, contracts clearly specify penalties for sellers who fail to deliver coal on time and set out procedures for buyers who do not receive the product. These measures provide greater security for both parties involved. However, on the MSE, buyers have complained about delayed deliveries, leading to contract extensions and disputes.
Despite these challenges, B.Dulguun highlighted that state-owned companies have benefited from the exchange. Since the launch of trading, these companies have earned an additional 1.3 trillion MNT in income, thanks to the transparent pricing system. The “additional income” arises from the price difference when companies buy coal at a higher rate than the initial price quoted on the exchange.
Contrary to some reports, Acting CEO B.Dulguun clarified that brokerage companies are allowed to participate in trading, with 13 brokerage firms registered on the Mining Exchange. However, only two firms are actively engaged in trading, seeking customers primarily through mediation with Chinese companies. The participation rate among buyers has also been low, with only 150 out of 456 buyers actively trading, and only 10 of these companies accounting for 80 percent of total purchases. On the seller side, there are five to six active companies, including major players like Erdenes Tavan Tolgoi, Energy Resources and Tavantolgoi JSC.
Moreover, he acknowledged that the decline in trading activity during the second half of 2024 was driven by several factors, including the price drop and delays in delivery. Moving forward, the exchange plans to overhaul the payment system, eliminating the upfront 10 percent deposit requirement, which is expected to help stimulate trading.
The MSE reported that coal prices in Mongolia are expected to decline this year, with the price drop varying depending on the type of coal. Currently, prices hover around 100 USD per ton, though some grades are trading closer to 80 USD. While prices have not fluctuated sharply, they remain stable at approximately 900 CNY. In contrast to other countries, where trading continues even when prices fall, Mongolia sees a decrease in trading activity as soon as prices drop. This is largely due to the limitations of the Millennium IT system, which does not allow buyers to bid below the price set by the seller.
Under the current system, only the seller sets the price, making it impossible for buyers to negotiate lower prices. For example, if a coal price is set at 100 USD, buyers cannot offer 90 USD. This lack of price flexibility has raised concerns, with some questioning the viability of the mining exchange. In response, the MSE is studying updates to its software and is exploring the systems used by major foreign exchanges to enable more dynamic pricing. The MSE also plans to implement a system where buyers can set their own prices and negotiate with sellers. Additionally, a new feature will allow buyers to resell coal that they have purchased but not received. If a buyer pays for 500,000 tons of coal but only receives half, they will be able to sell the remaining 250,000 tons to another company. This secondary trading initiative has been greenlit by the Ministry of Economy and Development and is set to launch by September 1, 2024.
However, the launch of secondary trading faces obstacles due to the lack of integration between the MSE’s system and the General Administration of Customs. Since 2023, the customs department has not connected its system with the MSE, citing confidentiality concerns over company information. The MSE has sent numerous letters to customs requesting data on the amount of coal, iron ore and fluorspar cleared through customs, but no significant progress has been made. The Financial Regulatory Commission has instructed the exchange to monitor the trading, but issues regarding the sharing of confidential customs data remain unresolved.
According to B.Dulguun, in 2024, Erdenes Tavan Tolgoi mined a total of 33 million tons of coal, with 15 million tons traded on the Mining Exchange. The remaining 18 million tons are being supplied under contracts to companies such as Bodhi International, China’s Norinco, and CHALCO. These contracts, however, will expire this year, and Erdenes Tavan Tolgoi is set to begin supplying coal to China’s state-owned “China Energy”.
The Ministry of Finance had projected that 83 million tons of coal would be exported this year at an average price of 105 USD per ton when preparing the state budget. However, economists at the MSE have estimated that the price will fall to 80 USD per ton, creating a 20 USD difference that could significantly impact state budget revenues.
