Mongolia to profit from Chinese copper demand

flag of mongoliaMarc Faber, the Swiss-born, Thai-based investor known affectionately to many as “Dr. Doom,” remarked to Bloomberg recently that Mongolia is “torn between two lovers – China and Russia,” and is a country with huge potential. “The country is incredibly resource rich, another Saudi Arabia, next to the largest population in the world.”

Earlier this month Mongolia was approved for a $229.2 million stand-by loan from the International Monetary Fund to help the country stabilize its economy. “Mongolia has been severely affected by the global financial crisis through a sharp reduction in the prices of its main mineral exports, notably copper,” said IMF Deputy Managing Director and Acting Chairman Takatoshi Kato. “The authorities are committed to restoring macroeconomic stability and putting in place the conditions for strong and equitable growth.”

Today, however, copper prices rose to its highest in almost six months in London based on speculation that demand from China, the world’s largest buyer of the metal, would decrease inventories. According to Bloomberg,China’s 4 trillion-yuan ($590 billion) economic-stimulus plan spurred the first increase in manufacturing in six months and a sixfold surge in bank lending in March. “Only 2% of global copper reserves are in China, and they can still expect a strong industrial boom for the next couple of years,” remarked one analyst.

Mark Mobius, an emerging market fund manager for Templeton Asset Management, concurs. “We continue to see countries such as China form alliances to secure the long-term provisions of commodities,” Mobius said. “While in the short-term, the country will be impacted by the recent correction in commodity prices, a long-term uptrend in commodity prices will benefit Mongolia.” Additionally, the country has attracted roughly $1 billion of private equity in the past 24 months, according to Robert Lepsoe, its honorary consul.

Mongolia’s MSE Top 20 Index has fallen 8.7% this year, compared with the 5.8% drop in the MSCI Asia Pacific Index.

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4 responses to this post.

  1. Most certainly Mongolia is strategically between two neighbors large in seize and in need of Mongolia’s mineral resources. Of course one can see that in a negative context or in a positive context. Unlike Australia for example Mongolia doesn’t have to ship its raw materials to these countries but can bring it across the border. Further, the distance between the source of the mineral resources and the ports in China and Russia is not as far as many try to make others believe and not more (or even less) far than many other industrial cities in these countries.
    Lastly, Mongolia is not only rich in copper and gold (these are just the first major mines by Ivanhoe) but also in coal (probably largest deposit in the world), uranium, fluorspa, iron, nickel, tin, etcetera but also in wool, leather, fur and cashmere for example.
    Expected is that after the Ivanhoe deal more deals will be signed, not only doubling the GDP of the country but probably tripling it at least.

  2. Roy,

    thanks for the comments. Am aware of the Ivanhoe deal, but from what I can see, it will end in an RTP takeover of Ivanhoe Mining Mongolia.
    It would be great to see Mongolia putting together JV’s with mining majors, but the state of the economy prohibits them making the cash calls needed.
    China / Russia makes a compelling case from a transit point of view & also geopolitically for Mongolia too, in the short term the Chinese have the desire & the cash, so will be interesting to monitor events.

  3. […] Mongolia to profit from Chinese copper demand […]

  4. Social comments and analytics for this post…

    This post was mentioned on Twitter by andrepelotas: RT: @CynthiaY29 Mongolia to profit from Chinese copper demand http://bit.ly/KLoMz

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