Like a dragon awakening from its slumber, the rise of Mongolian coal in the Chinese market is posing a growing threat to established seaborne trade flows and volumes. Over the past few years, Mongolia’s coal exports have surged dramatically. According to China’s customs data, Mongolian coal volumes into China more than doubled in 2023, reaching 69.9 million tons. In 2024, shipments grew even further to 82.9 million tons, cannibalizing seaborne trade as Mongolia leveraged its shared land border and railway networks with China.
This momentum shows no signs of slowing. Mongolian Prime Minister Oyun-Erdene Luvsannamsrai has set a target to increase coal exports to China to 100 million tons in 2025. Furthermore, the construction of a new cross-border rail link is slated to begin in April 2025, with a projected completion time of two and a half years. This project is set to boost Mongolia’s export capacity by 30 million tons and is just one of several rail links Oyun-Erdene envisions, with a long-term goal of increasing Mongolia’s coal export capacity to China to 165 million tons.
The development of these new rail links, alongside China’s heavy investments in Mongolia, signals a strategic shift away from seaborne trade. This shift is poised to have the most substantial impact on the coking coal trade.
Despite recent challenges in China’s steel industry, including tight margins and weak domestic demand, China’s total coking coal imports still managed to grow by 19.9% YoY last year, according to China’s customs data. However, the share of coking coal imports from traditional suppliers, such as Australia, and longer-haul suppliers like the U.S. and Canada, has been decreasing. In contrast, coking coal imports from Mongolia and nearby Russia have accounted for 71-79% of China’s total coking coal imports over the past three years, compared to just 45% in 2021. This shift signals China’s preference for closer, more cost-effective coking coal sources, suggesting that these new trade dynamics are likely here to stay. These changes could have the most significant impact on the Panamax and Capesize markets, as the majority of coal exports from Australia and longer-haul suppliers are shipped on these vessel sizes.
There is, however, a small silver lining. India is also entering the fray, with discussions underway to develop trade routes with Mongolia. In November last year, India’s JSW steel and state-run Steel Authority of India (SAIL) initiated talks with Mongolian authorities to import two shipments of coking coal while exploring potential supply routes. In January this year, India was set to sign a mining pact with Mongolia, with an official confirming India’s preference for the Vladivostok supply route through Russia. Despite the longer sailing distance compared to land-based shipments through China, India’s preference for reducing its reliance on supplies moving through China could pave the way for the development of a new, strategic seaborne trade route.
