Russia to help Mongolian coal, copper exports; ramps up own shipments to APAC markets

Russia has agreed to allow Mongolia to access its transportation infrastructure to ship coal and copper to Asia-Pacific markets, while it ramps up its own exports via the same logistical pathways, causing them to become overburdened.

Mongolia's ambassador to Russia Olziisaikhany Enkhtuvshin met Primorsky Krai Governor Oleg Kozhemyako on April 26 to discuss the possibilities of Mongolia re-exporting through Russian ports in the Far East, according to information on the Primorsky Krai website.

The agreement means Mongolia can export coal and copper to China via Russia.

Mongolia, which has a 3,450 km border with Russia, inaugurated its trade representation in Vladivostok, a major Pacific port city in Russia, on April 27.

"We look at Primorsky Krai seaports as a solution to our transport issues. We hope for full understanding and assistance," said Enkhtuvshin, adding that the coronavirus pandemic had added to the complexity of the country's export logistics.

Kozhemyako said there were possibilities for both coal and copper transshipments through Russia and a willingness to find a location to set up a joint venture for building additional port infrastructure.

S&P Global Commodity Insights assessed premium Low Vol met coal at $518/mt FOB Australia April 28, down $2/mt on the day and at $510/mt CFR China, down $5/mt.

Mongolia aims to launch three rail lines in 2022 to streamline coking coal and copper exports to China, which are currently shipped via trucks.

Mongolia exported 1.2 million mt of copper concentrate to China in 2021 from its Oyu Tolgoi mine, and 14.04 million mt of coking coal, with 2022 targets set at 1.3 million mt for copper and 36.7 million mt for coal.

A Mongolian representative said previously that Mongolia was focused on China because transportation costs for other markets were too high.

"Mongolia exported coking coal only to China and via truck, but occasionally the shipments were disrupted due to COVID restrictions at border crossings," said Sergey Nedelin of Moscow-based Metals and Mining Intelligence. "It is not clear though why Mongolia wants to have recourse to Russian logistics, if it is about to launch its own rail links."

Port infrastructure in Russia's Far East has developed well and can process a larger turnover than a few years ago, but the issue is that when Russia's own products, such as rolled steel and coking coal, are being redirected to Asia due to imports being banned by the EU, the possibilities for handling third-party cargoes in ports looks limited, Nedelin said.

Given that the distance between mines in Mongolia and targeted ports is too vast to cover by road haulage, coal or copper will most likely be railed to the coast via the Russian Eastern network -- made up of the Baikal-Amur, or BAM, and Transsiberian lines -- the freighting capacity of which is too tight even for Russian users alone, he said.

Russian coking coal miner Elga Coal, which is also China-orientated, broke ground in April on its new 500 km railroad with 30 million mt/year throughput that will link its Yakutia-based mines to Chumikan on the Sea of Okhotsk, citing congestions on the state railroads to Pacific Ocean ports as one of the reasons behind the Rb97 billion ($1.2 billion) investment.

Eastbound railways overloaded

EU sanctions on some Russian commodities following Russia's invasion of Ukraine have added pressure on the BAM-Transsib railway section -- a major artery now taking tonnage previously allocated to the EU eastwards.

Russian coking coal deliveries to China in the first quarter totaled 3.33 million mt, more than double the 1.39 million mt in Q1 2021, according to Chinese customs data.

The spike was prompted by an EU ban on Russian coal imports, affecting around 3.4 million mt/year of coking coal.

This followed the bloc's mid-March prohibition on imports of Russian steel, which added another 4 million mt/year to be distributed elsewhere and via alternative freight routes.

Russian Railways is carrying out the expansion of the BAM and Transsib lines to boost their freighting capacity to 180 million mt/year in 2024, from 144 million mt in 2021, but the de-bottlenecking project started in 2018 was planned on gradual growth in cargo traffic on the route, not on the risk of sanctions and consequent sharp increases.

Coal imports incentivized

Several European steelmakers told S&P Global they had replaced coking coal tonnages lost due to the sanctions against Russia, but declined to name the new suppliers.

European coal association Euracoal said Russian coal covered 11% of EU mills' needs, and its replacement was not as tricky as mitigating significantly larger steam coal losses.

High-quality coking coal suppliers are not numerous though, and include Australia, the US, Canada and Mozambique, Euraocal said, adding that coal from all sources helped.

China is taking steps to encourage coal imports too. Effective from May 2022 through end of March 2023, it has removed import tariffs on various coal grades to ensure sufficient supplies amid global disruption caused by the war in Ukraine.