Mongolia has expressed interest in becoming a potential supplier of coking coal to India and has approached the country's Steel Ministry to explore possible partnerships, sources familiar with the matter revealed.

Coking coal is a crucial raw material for steel production, and India, the world's second-largest crude steel producer, is one of the largest importers of this feedstock.

While Australia is currently the primary source of imports, followed by the U.S., Indonesia, and Mozambique, Indian steel mills have been actively seeking alternative markets like Russia due to the increasingly volatile coking coal prices. Notably, U.S. and Indonesian shipments to India nearly doubled in FY23, with coking coal imports reaching 54.3 million tonnes.

According to an official familiar with the discussions, Mongolia is eager to supply coking coal to Indian steel mills and has presented proposals to the Steel Ministry. Company-level discussions have already taken place, but the ultimate decision lies with the steel manufacturers.

One of the major concerns raised by Indian mills, as stated by officials from the Ministry, is the land-locked nature of Mongolia and the potential challenges and increased costs associated with transporting coal over long distances. Furthermore, there are concerns about the compatibility of Mongolian coking coal with the blast furnaces of Indian mills.

Mongolia has existing rail connectivity with Russia and China, as well as access to their respective ports. The focus is on leveraging these transportation networks for coal exports, with several rail projects commissioned in 2022 and plans to open new railroad checkpoints, primarily catering to mineral transportation.

Interestingly, Mongolia has recently shifted to auction-based pricing for its coal exports through the Mongolian Stock Exchange (MSE). Direct sales contracts with overseas buyers have reportedly been halted, and the government has mandated that coal exports be conducted through open electronic trading via the MSE. This new approach aims to simplify the export process by factoring in transportation fees and establishing "border prices" rather than solely relying on mine-mouth prices.

As Mongolia looks to diversify its coal export destinations, India presents a potential opportunity for both countries to strengthen their coal trade ties.

(Writing by Alex Guo  Editing by Harry Huo)
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