Chinese steel mills and power stations have started buying more coal from Mongolia after Beijing imposed a ban on imports from Australia;  but price, quality and logistical difficulties mean it will not be easy for some users to make the switch.

While politics might have played a role in the decision to shut off Australian coking and thermal coal, the practical difficulties in doing without it may force a rethink of the ban over time, analysts said.

Coal from Mongolia, which borders China to the north, is the most obvious replacement for Australian coal, particularly due to the inability of suppliers located further away – such as the United States, Russia and Canada – to meet a short-term increase in demand, S&P Global Platts said in a recent update.

But while users in northern China will largely be able to make the change, those in southern China will find it more difficult to do so because of the logistical difficulty and expense of transporting coal from Mongolia. This is likely to force many to rely on more expensive domestic coal if they can no longer access Australian imports.

Mongolia has been increasing exports to China and is now sending more than 1,000 trucks a day laden with coal. The increasing use of Mongolian coal might allow the country to retake its position as the top supplier of the commodity to China, particularly coking coal used in steelmaking.

Mongolia slipped from the top spot earlier this year after lockdowns and border closures cut production and disrupted supply chains.

China and Mongolia are due to increase bilateral trade after Mongolia agreed to cut tariffs on 366 categories of Chinese exports, including aquatic products, fruit and vegetables and chemical products last week following its accession to the Asia-Pacific Trade Agreement (APTA).

China’s Ministry of Commerce said Mongolia would enjoy reciprocal tariff reductions in line with the agreement and added that Mongolia’s accession to APTA could open up more opportunities for Belt & Road Initiative projects. (source: South China Morning Post)