G. Batdorj, Executive Director, Khutul Cement Shohoi JSC: Interview

Interview: G. Batdorj

What is the importance of increasing Mongolia’s cement production capacity?

G. BATDORJ: Mongolia has a sizeable cement market thanks to booming commercial and residential construction sectors, as well as the new airport and highways. The country’s vast territory and corresponding infrastructure needs (e.g., roads and railways) require a steady supply of high-quality cement. Demand is also being driven by rising capacity among heavy industries, a key towards moving up the value chain and curbing imports. Darkhan Metallurgical Plant’s plans for iron ore smelting plants and steel mills are further evidence of future increases in cement demand. Demographic trends also point to sustained long-term demand, with greater numbers of informal residents relocating into formal housing with the help of government schemes such as the 8% mortgage programme.

Unfortunately, the majority of domestic cement consumption is currently being supplied by China. Although Khutul cement plant has increased its capacity to 1m tonnes, this makes up only half of the 1.7m tonnes of total consumption in the country. While domestic consumption projections are slightly down for 2014, at 1.4m tonnes – the byproduct of a slowing economy – figures remain well above the country’s current production capacity. As the economy recovers, demand is expected to rise to between 3m and 5m tonnes per year by 2020. The continuing importation of cement therefore represents not only a significant cost, but also an obstacle to growth, both of which could be further aggravated if the tugrik continues to depreciate.

Indeed, besides being costly to import, Chinese cement is often of low quality. Due to the poor infrastructure at Zamyn-Uud, Mongolia’s main port for cement imports, only bagged cement can be transported, which negatively affects the environment and health of workers, as they need to be loaded and unloaded many times during transport. Going forward, it is not prudent to build new roads and buildings with substandard materials that will need to be repaired in a few years’ time. For all of these reasons, developing the country’s domestic production capacity is a crucial step towards self-reliance. To this end, multiple projects are being planned to add more than 2m tonnes of annual capacity – a clear step in the right direction.

How can foreign investors help to develop Mongolia’s construction materials industry?

BATDORJ: In order to achieve appropriate levels of domestic production, Mongolia must invest in the most advanced new technologies, many of which can be purchased from, or implemented with, the help of multinationals. For example, Mongolian cement producers are installing dry-processing technologies developed in the West with a view towards increasing efficiency. Dry processing consumes significantly less water and electricity than its wet processing counterpart, which allows firms to decrease production costs by nearly threefold while simultaneously cutting environmental pollution and reducing prices for end consumers.

Where are some opportunities for investment outside of the capital city of Ulaanbaatar?

BATDORJ: While Ulaanbaatar remains a pre-eminent destination for foreign companies interested in Mongolia, other areas present equally compelling investment opportunities, such as the city of Darkhan. Located on the railway connecting Russia and China, it benefits from proximity to Erdenet’s copper-processing factory and a ready supply of labour. Surrounded by some of the most fertile land in Mongolia, many agricultural operations are well established in the area. The city of Darkhan is also in the process of expanding its electricity generation capacity and increasing consumption of concrete products. As such, there are significant opportunities for investment that have the added benefit of helping to diversify national growth drivers away from the capital city alone. Places such as Darkhan are the future of Mongolia and therefore need to be developed correctly through beneficial government policies.