China Opens Border to Mongolian Coal But Market Remains Tight

China has reopened its border crossing for Mongolian coal imports, but shipments remain limited and so far insufficient to alleviate a persistent supply crunch, particularly of steel-making coal. 

The Gashuunsukhait-Ganqimaodu crossing reopened on Tuesday, according to Fengkuang Coal Logistics, after a halt of over a week to prevent the spread of Covid-19 from Mongolia. However, traffic has been slowed by virus tests on truck drivers, the industry publication reported. The customs office and local city government didn’t respond to calls seeking comment.

Coking coal futures in Dalian rose to an all-time high last week and have gained over 50% this year. Domestic supply has been constrained by safety and environmental restrictions, exacerbated by China’s ban on Australian coal and the suspension of overland imports from Mongolia, Morgan Stanley said in a note.

Prices fell 0.4% to 2,451 yuan ($379) a ton on Wednesday for a fifth daily decline since the record was hit. Thermal coal futures in Zhengzhou dropped for the first time this week and are also close to all-time highs.

Environmental officials continue to target Chinese coal operations and are carrying out checks in provinces including Shanxi, Hubei and Shandong, said Fengkuang. Coking factories in Shandong could see output cuts of 30% to 50% this month, it said.   

At the same time, environmental scrutiny could reduce demand for the mineral as China halts new industrial projects in regions that fail to comply with energy saving and emissions targets, as part of President Xi Jinping’s drive for a carbon neutral economy by 2060. The mounting climate pressure has weighed on metals production including steel and aluminum.  

©2021 Bloomberg L.P.

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