Mangolia: The largest coal supplier to China's steel industry, Mongolia, is changing the way it sells its product in an effort to increase transparency and increase the profits from its top export.

After being hurt by a scandal that saw hundreds of thousands of tons stolen from state stockpiles near the border last year, the government is switching to an auction system that will replace the long-term contracts that Chinese buyers prefer and charge customers more for transportation.

Beijing has recently sought to increase trade with Mongolia, especially after ceasing shipments from Australia, which used to be Beijing's top supplier of the higher-grade coal needed for blast furnaces.

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The objective is to sell 12 million tons via auction by July, according to comments made last week by Ganbaatar Jambal, Mongolia's mining minister, to local media.

In response to inquiries, the government stated that it would use auctions for all coal sales in 2024 and 2025, including thermal coal for power plants and coking coal for steel mills.

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The majority of Chinese consumers purchase goods from Mongolia. Nearly 26 million tons of coking coal were imported from its northern neighbor last year, accounting for 40% of all purchases.

The launch of the new auction system also coincides with improved ties between Beijing and Canberra, which has allowed for the restoration of Australian coal shipments that had been suspended since late 2021.

As a result, Chinese consumers will now have more options, which poses a risk to Mongolian miners. Long-term contracts also shield sellers from price fluctuations, and China's steel industry's future prospects are uncertain.

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After Beijing lifted its Covid Zero restrictions, Mongolia may bet on a return to growth, but the property sector, China's largest consumer of steel, is still under pressure.

According to the website of the Mongolian Stock Exchange, which is hosting the auctions that started this month, sales listed there as of now total 128,000 tons.