2020 | November - December | 034
Mongolia ushers its biggest economic recession in 30 years as a result of the COVID-19 pandemic. Nonetheless, export revenues from the country’s minerals and petroleum sector went up by 400 million USD in 2020. This led to total monetary value of the sector exceeding 6.8 billion USD, making up 93 percent of total export revenues.
In the one year since the novel coronavirus was first confirmed in China, our main buyer, Mongolia has restricted foreign and domestic transportation flows and tightened customs controls. However, by maintaining circulation of goods and shipment despite complete restriction on movement of people across border, Mongolia’s foreign trade and especially its export sector overcame the pandemic in the past year without suffering serious losses. On the contrary, it even showed growth during this time.
Among transportation, flights and road shipment were hit by COVID-19 the longest. This has negatively impacted the export of bulk dry cargoes including coal and iron ore. Coal export which requires auto road transport suffered the hardest blow from the pandemic. Coal export went down as the Government of Mongolia heightened its state of readiness every time. Specifically, in February and March of 2020 when the first decisions rolled out to establish restrictions and later in November and December when the first local transmissions were recorded, coal export plunged each time in terms of monthly volumes.
While coal export which is depended on vehicle flows for its sales volume was dwindling, gold, the commodity which is least dependent on transportation, saw soaring export performance.
Last year, coal export was cut by 7.9 million tons or 21 percent to 28.6 tons compared to 2019. Due to reduction in total export coal volumes, the revenue was cut by 950 million USD (30 percent) to 2.1 billion USD. Thus, actual coal performance couldn’t reach both the 42 million tons targeted under the 2020 budget approved by the Ministry of Finance and the 36 million tons re-imagined under the budget review. It must be mentioned that as a result of such “bubble” policy that deviated far from reality after repeated reviews, the state budget incurred over 4.5 trillion MNT in deficits.
While coal export which is depended on vehicle flows for its sales volume was dwindling, gold, the commodity which is least dependent on transportation, saw soaring export performance. Gold export volume and monetary value tripled last year from 2019 to 1.79 billion USD. The amount of gold sold at the foreign market in 2020 reached historic high since Mongolia’s first registration of commodities, exceeding 30 tons.
The graph shows how gold export shot up in the same months when coal export plunged. The correlation between gold and coal exports seem to indicate the implementation of the policy to maintain balance of payment and foreign currency flow. In other words, with the exception of the three months of election season, gold and coal exports had negative correlation last year. This was how Mongolia made up for its loss from coal export through gold.
It’s interesting, however, where all this gold came from. The Customs General Authority reported that Mongolia exported 30.5 tons of gold in 2020. However, the Bank of Mongolia which is the only body authorized to trade the “yellow metal” on the international market on behalf of the country officially reported that 20.5 tons of gold were traded last year. Of the total 23 tons of precious metals purchased by the BoM in 2020, 20.5 tons were gold. That would mean the central bank exported 10 tons of gold in addition to the 20.5 tons which were purchased last year. This “stashed away” 10 tons of gold has not only saved the minerals export from falling, but also acted as a “shield” against the pandemic for stabilizing Mongolia’s foreign currency reserves and MNT rates.
The central bank exported 10 tons of gold in addition to the 20.5 tons which were purchased last year.
Although it didn’t suffer as much as coal or take off as high as gold in 2020, copper still brought in almost two billion USD in revenues as it did in previous years without much effort. Despite some disruptions in the first quarter of last year, the commodity’s export volumes didn’t go down exponentially due to relatively lower exposure to COVID-19. Simply put, the mixed shipment through both rail and truck saved copper exports from downfall compared to coal. Export volume reduced slightly by 0.6 percent and revenues by 0.9 percent to 1.78 billion USD.
Similarly, iron ore export suffered a relatively softer blow from the restrictions due to its supply going through mainly by railroad. Although its export volume went down by three percent in 2020, iron ore revenues increased by 11 percent to 640 million USD thanks to price hike. From last September when news of COVID-19 vaccines gained traction, China’s iron ore prices started soaring. However, Mongolia’s export price increase is measured at only 14%.
In addition the main commodities mentioned above, raw materials such as zinc concentrate, fluorspar ore and concentrate, lead, and refined copper, with the exception of molybdenum concentrate, have seen a fall in export volumes. The revenues went down 17 percent from 2019’s 580 million USD to 484 million USD.
The overall picture shows that Mongolia’s precious metals and minerals export revenues went up. Meanwhile, petroleum, one of the pillars of the country’s minerals sector, fell by 37 percent in terms of export volumes last year and its total revenues dropped 60%. Petroleum export revenue going down by 216 million USD was reportedly due to a swing in commodity prices.
Despite effectively shutting out its population from the outside world as the novel coronavirus emerged, Mongolia managed to grow its export by way of continuing its lifeline of shipments. The question is, however, whether or not such growth was absorbed by the economy and became income to the budget. What’s clear, judging by the fluctuating in MNT rates, is that this export growth protected the dwindling currency reserves of the country which was in isolation for an entire year from destitution and helped reign in USD’s hiking rates.
Lastly, although it’s a worn out topic, the coronavirus has yet again reminded of us the vulnerability of the Mongolian economy. While mining is the economy’s vulnerable spot, mining’s weak spot is coal and coal’s “Achilles heel” turns out to be road transport.
Эдийн засгаа “эмчлэх” санаачилга ба Супер циклЗахиалах