This study by international coal market consultants Fenwei Energy Information Services Co Ltd forms part of a pre-feasibility study (PFS) for Aspire’s Ovoot Early Development Plan (OEDP).
Annual supply gap
The Coal Quality Competitive Assessment of the OEDP in Chinese Markets report identifies an annual supply gap of 16–22 million tonnes for fat coking coal in China over the period to 2025.
Fenwei’s report categorises the OEDP washed coking coal as a moderate ash, moderate sulphur fat coking coal.
This indicative specification, which will be confirmed on release of the PFS results due shortly, puts Ovoot coking coal well within the marketable specification ranges for fat coking coal brands in China.
Fat coking coal is used in blends to produce coke for steel making in blast furnaces.
It creates conditions for good meltability, improving coke’s wear strength, and creates conditions for adding other coals with low caking capability.
Aspire owns the world-class Ovoot Coking Coal Project in Mongolia’s north, which is the country’s second-largest coking coal project by reserves.
The OEDP targets early production of washed coking coal via a truck and rail operation to end markets with 12 to 15 months of final operational and board approvals.
Operational expansion at Ovoot can occur following construction of the Erdenet to Ovoot Railway, which is being progressed by Aspire’s subsidiary, Northern Railways LLC.
Fenwei noted in its report: “Due to the stricter requirements on coke quality in large blast furnaces and the increasing blending ratio of hard coking coal, [the] fat coal market may see a large gap of 16-22 million tonnes (per annum) in 2018-2025, which needs to be filled by imported coal, especially low and medium sulphur fat coal.”
Helping meet the deficit
Aspire’s chairman David Paull said: “The targeted 3 to 4 million tonnes per annum of washed fat coal production from the Aspire OEDP will go part of the way to meeting this deficit.”
The Fenwei report indicates that fat coal as a percentage of total Chinese coal blends will rise from 13.6% to 14.7% between 2018 and 2025 resulting in annual total fat coal demand of 76 million tonnes.
Of this, only 11 million tonnes annually of low sulphur (< 0.75%) fat coal is expected to be mined from Chinese domestic mines.
Medium sulphur type
Ovoot coal is considered to be medium sulphur at 1.2% and the medium sulphur type makes up 44% of fat coal consumption in China’s steel industry with high sulphur coals starting at +1.5% having a 28% share of the market.
Fenwei said that given the forecast higher proportion in blends, demand for fat coal in China was rising at a time when domestic fat coal production was predicted to be stagnant over the forecast period.
Hebei highest value market
China’s Hebei Province is forecast to provide the highest value market for Ovoot fat coking coal with a long-term price forecast range of Rmb1,217 to 1,307 (US$176-191) per tonne delivered to customers in the province.
Aspire said that market dynamics for coking coal, and fat coking coal in particular, were expected to underpin relatively stable future pricing.
While the report focused on China, given the northern location of Ovoot, there are also viable markets in Eastern Europe, Russia and the Russian Far East with new lower rail tariffs being offered by Russian Railways.