Despite setbacks, the Mineral Commodity Exchange has started working

Ts. Elbegsaikhan

Six months have passed since the draft Law on Mineral Commodity Exchange was finally approvedon December 23, 2022, by a majority vote of all members of Parliament. It had taken a year since the former Minister of Mining and Heavy Industry G. Yondon had presented the draft law at a meeting of the Standing Committee on Economics. On 27 January last year.

During that period, the 40 trillion MNT coal theft scandal had largely subsided. With the hope that the Mineral Commodity Exchange will prevent future thefts, trial coal trading through the exchange began.

While it has not yet generated the expected trading volume, there are reasons why mining companies should welcome and support the Mineral Commodity Exchange.

This is especially true for coal miners that have been complaining that mining royalties are unfair and calling on the authorities to lower royalties or even remove them. While our minerals cannot be sold even at the border price, let alone the world market price, the fact that royalties are calculated at the average international rate is causing miners to lose out. However, their rigid demand is a dangerous “game”.

Despite its disadvantages, royalty is a “peace” agreement between  society and the industry. It is indisputable that the miners would suffer the most if this agreement were to be terminated.
But after selling a small amount of coal on the exchange, it has become clear what is the problem and its solution. It used to be difficult to verify whether the price of coal exported by companies was real. However, it is good that the Mineral Commodity Exchange now keeps records of prices and quantities of minerals sold and publicly announces them.

Thus, the Mineral Exchange has a great opportunity to significantly change the legal regulation in the mining industry and bring positive trends. In particular, coordinating the procedure for royalty calculation and collection with the activities of the Minerals Exchange could benefit both the government and the miners.

Otherwise, it’s too early to say whether it will prevent coal theft or expand the flow of US dollars into the economy.
However, in order to properly lay the foundations of the Mineral Exchange and develop it according to market principles, several things must be clarified.. For example, where should the Mineral Exchange be located? How to attract buyers to Exchange operations? Who will determine the difference between the price at the border and the mine-mouth price? How to solve the capacity problems at  border points, railroads, transport, and which problem should be solved first?

The Law on Mineral Commodity Exchange clearly states that only newly created legal entities with state ownership have the right to use this assigned name. It is unclear whether the Mongolian Stock Exchange, which currently organizes trading of mining products and develops by-laws, has a legal right to organize trading of minerals in the future.
Second, there is currently no government official who can give an answer as to whether trade of export products should be organized in Ulaanbaatar, which is far from all infrastructure, clusters, and value chains? Is it possible to have a properly functioning exchange without suppliers, buyers, and brokers who act as intermediaries between them?

The main buyer is China. To be precise, it is a steel mill in the city of Bugat. First we have to answer the question whether there is a big enough market to justify the presence of a commodity exchange? But the law has already been passed, and the exchange has started working.

N. Enkhbayar, an economist and head of the Center for Economic Security Studies at the Institute for Strategic Studies, noted that of the 19 million tons of coal exported in the first four months of the year, less than 1 million tons of coal were sold on the Mineral Exchange. In addition, according to information on the commodity exchange’s electronic platform, there are virtually no buyers interested in our coking coal. 

Even if we do not go into the delicate issues such as transport logistics, port capacity, agreements between the two countries, we still cannot say that there is enough market to operate an exchange.

However, this is not a sufficient reason for closing or bankrupting the Mineral Exchange. Because this exchange is the only hope that can build trust and consensus between the mining sector and  society. 

So now is the time to think about where else to find  buyers that can compete with Bugat steel plant and offer competitive prices, and how to convince them to trade. Could the Mongolian Stock Exchange do this?