Source: Steel Guru                            Date: 31 August, 2011

Chinese steel makers in desperate need for coking coal are targeting Mongolia's vast supply. Mongolia is China's largest supplier of fuel.

China is the world's largest producer of steel. To ensure that it remains that way, Chinese firms are eying Mongolian coking projects, hoping to take a part in operations. Xinjiang Bayi Iron and Steel Co Ltd, a subsidiary of Baosteel, has a 10-year contract for supplying coking coal from Mongolian Energy Corporation (MEC). The firm also indicated an interest in buying a stake in MEC's operations. Jinan Iron & Steel and the Aluminum Corporation of China (Chinalco) both signed contracts with Mongolia's state-owned mining firm Erdenes Tavan Tolgoi LLC for coal supplies worth USD 250 million from deposits at Tavan Tolgoi's East Tsankhi site. However the source reported that the companies are interested in purchasing the site dedicated to domestic operations.

“Mongolia has rich untapped reserves and the location is very attractive for Chinese companies,” said Huang Shenhu, president of the China Coal Information Institute.

Tavan Tolgoi holds an estimated reserve of 6.4 billion tons of coal. It is considered the world's largest untapped source of coking coal and rests just 270 kilometers from the Chinese border. Coal shipments to China first began in July this summer.  Mongolia National Mining Association expects total 2010 coal production to triple to 60 million tons by 2015.

Last month, the government awarded 40 percent of Tavan Tolgoi to the Chinese firm Shenhua Energy. However, a rise in controversy over the government's decision has put the situation in uncertainty and the government promised to reevaluate its decision.

Each year, China's energy independence wanes. Currently, China is 90 percent self-sufficient in fuel, but dependence on foreign imports is rising. Mongolia will likely play a major role in this transition.