China companies are buying coal from suppliers outside of Australia after the government imposed a ban on its imports.
Steel mills, power stations, and other companies have increased their purchase of coal from Mongolia to offset a shortage.
Industry experts have said some companies are worried about price, quality and logistics when buying from Mongolia. Some analysts predict China might rethink its ban to avoid disruptions to coal-reliant industries.
Mongolian coal was the most obvious alternative to Australia. Owing mostly to its proximity, Mongolia can meet a short-term jump in demand unlike other suppliers such as Russia, Canada and the U.S.
Companies that need coal in northern China are expected to adapt to the change more easily - but those in southern China may face logistical difficulties. Import data shows that Mongolia has already begun to increase its exports of coal to China - transporting more than 1,000 vehicles each day, mostly to northern China.
"The one bright spot is Mongolia - whose coal quality is a good substitute for generic hard coking coal. The landlocked country has been increasing exports to China," analysts at S&P Global Platts had said in a statement.
The increase in coal imports could also elevate Mongolia's position as China's top supplier this year, particularly for coking coal used in steelmaking. Mongolia slipped from the top positions earlier in the year due to the pandemic with Australia moving up as it stepped in to fill in the shortfall.
Commodities market analysts at CRU Group said in a statement that Chinese companies are more likely to tap into Mongolian suppliers given the favorable political relationship between the two countries. Last week, the two nations strengthened their ties under the Asia-Pacific Trade Agreement, cutting tariffs on goods in 366 categories. Both countries agreed to significantly cut duties on imports such as aquatic products, chemicals, fruit and vegetables. China's Ministry of Commerce previously also stated that the bilateral agreement will serve to open up new opportunities for the country's Belt & Road Initiative.