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Prices for minerals other than gold are unlikely to recover

2016/09/21

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15% of the revenues of the Mongolian state budget, or about one trillion MNT comes from the mining industry. But everyone knows that doing this income depends on what the situation on the world market.

In particular, this does not depend on us, and the best action from the authorities and the government - it is as accurate as possible to assess the price. How realistic budget expected for 2016. "AE" represents information about the course of prices for mining products, which are the main source of our country's export earnings, coupled with the world's best economists' assumptions about what action to take better.

The Government of Mongolia in 2015, calculated the price of coal, gold and copper, which constitute the main export products, too high and because of this, the deficit of the budget revenue amounted to more than one trillion MNT and had to amend the budget. This year, in order to avoid repetition of errors, calculated relatively low, but the market price remains below the planned level.

When Parliament approved the budget for 2016, assessment of the price of the main sources of income from exports produced as follows: the price of copper at $ 5268.7, the price of coal, depending on the varieties, at $ 32.8-54.8, the price of an ounce of gold at $ 1156, but with the beginning of the year courses prices of goods did not reach to the planned level, except gold

The course price of copper, which is on the London Metal Exchange at the beginning of the year was at the level of $4400, despite the fact that during the first three weeks of March reached up to $ 5,000 (up to 5100- on March .20) mostly ranged from 4500 to 4700. In particular, the budget loses $ 500-600 per ton of copper, which is exported. With regard to coal, then starting from the beginning of 2016 to 34.8 dollars, the price of coal fluctuated around $ 40 after.

This year, only gold is the most optimistic assumption, and tends to for further growth. The price of gold is planned at the level of $ 1156 and even at the time of the change of the new year the price of gold was $ 1080, that is below the planned level, but later went on increasing in February passed threshold of $ 120, and then fluctuated between $ 1240- $ 1270. Fortunately, according to experts economic price reaches 2,000 gold in the future, it may be more.

The price of gold in its essence is lowered and then raised. If dropped, it is sure to rise after when raised, be sure to go down after. Then the course of gold prices began to fall in 2013 and the upward cycle was in 2016. In conditions when the international market price fell below the planned level, and there is no hope but to wait for further growth in the future, the country and the state shall take measures increase the volume of production to reduce the deficit of the expense. And so we do. However, proper progress as in the three sectors is not observed.

In the case of copper, although in the first three months exported 412.8 thousand tons of copper concentrate and exports increased by 33% compared to the same period last year, but revenue was $ 481.5 million, respectively, and declined by six per cent. Last year, 3.27 million tons of coal were exported and received $ 130 million, but this year for the same volume of exports received only $ 99 million. And this year exported the same volume of iron ore, crude oil and as a result the amount of income from them decreased significantly.

From the above one can see that a large part of the income which was supposed to receive from the mining sector to the budget of 2016, may not be obtained due to the difference in prices for minerals. Then, a change will be for the remaining time. Ed Meyer, an economist at the respected industry minerals like W. Buffett, known for its foresight, dropped some very bad words to the Mongols. Being an independent consultant group "INTL FCStone Financial" Ed Meyer in his interview to "Metallbulletin" said that the price of copper this year will fall to $ 3850. He said that the slowdown in China's economy, which industry uses 45% of the world copper of volume and the appearance of many new suppliers of copper will cause lowering of prices.

But there are also very different versions. Analyst Bank "Standard Chartered" Nicholas Snowden said that the price of copper will reach up to $ 6000 US dollars in the fourth quarter of this year. But he offered his own version of the end of March when the price of copper reached up to $ 5,100. Since copper is slightly decreases in value. By yesterday at the London Metal Exchange, price was at $ 4813.

Australia is one of the countries determined by the world market price of coal. Thus, forecasts of the Australian Stock Exchange and their experts are relatively real. In 2016, Australian BREE predicted that the average price of coal in 2016 will be $ 50-60. By yesterday at the Australian ports of the price of one ton of coal was $ 51 and their experts predict a slight decline in May.

But our country has a feature that could not sell their coal at the world market price and is in direct proportion to the PRC. With regard to our southern neighbor, it finished the first quarter of this year, with the index reduction of volume of coal production by 8.3% compared with the same period last year. In the future, it is very unlikely increase the volume of production. The second-largest player in the market of coal, “Peabody" from the United States announced its bankruptcy and it probably can demonstrate a dim future for the sector.

Such is the current situation of the mining industry, which is the main source of foreign currency in Mongolia. We estimate that in 2016 our country will receive MNT 900 billion from the mining industry. Then if you take the current situation it is clear that a significant portion of this money will be missing.

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