Coal Tar Is Driven by Downstream


By Li Yicai


Coal tar is a by-product derived from high temperature coking
of coal, which accounts for around 4% of the dry coal. It is
mainly composed of aromatic hydrocarbons. Coal tar is a valuable
raw material in the production of plastics, synthetic fibers,
dyestuffs, synthetic rubbers, pesticides, pharmaceuticals, and
high-temperature resistant materials. With the development of
the coke industry and the coal coke chemical industry, the market
of coal coke chemical products with coal tar as leading product
begins to form in China.




Rapid growth in supply and demand


China produced 177.5 million tons of coke in 2004. The output
of coal tar as by-product was around 7.1 million tons and most
of it was high-temperature coal tar. The coal tar processing
capacity was around 4.2 million t/a. The output of coke supplied
from coke producers with a considerable scale was 232.8 million
tons in 2005. The output of coal tar as a by-product was around
9.31 million tons, an increase of 31.1% over 2004. The coal tar
processing capacity in China was expanded by over 1.0 million
t/a in 2005 and reached a total of over 5.3 million t/a. The coal
tar processing capacity in Shanxi province has expanded by more
than 650 thousand t/a to a total of over 1.2 million t/a.
    An upsurge in the development of the coal coke chemical
industry is progressing in China. One foreign company after
another has also entered this sector. Coal tar projects with a
capacity of over 100 thousand t/a was being constructed or
planned for construction in China by October 2005 and had a total
capacity of 2.15 million t/a. The technology used in some large
projects is quite advanced. For example, the 300 thousand t/a
unit constructed by Shandong Haihua Group utilizing the
technology from JFE of Japan. Most small units are however still
using the intermittent distillation process developed by China
in the 1960s. Coal coke chemical products in China have around
120 varieties, but products that can have commercial production
are only less than 30 varieties. There is a great gap when
compared with Germany and Japan. In spite of a considerable
expansion made in processing capacity, many domestic
enterprises have not gained much improvement in the production
of refined products and their ability in research and
development is still quite weak.




Deficit of supply in market


The supply and the market price of coal tar are greatly
influenced by the coke and oil markets. There were great
fluctuations in 2005. At the beginning of 2005, the price of coal
tar was decreasing. Owing to various factors such as the crude
oil price, the price of coal tar had a stable recovery after May
2005. With the impact of the increase in the consumption and the
price of coal-based fuel oils after August, coal tar had a
deficit of supply and the price had a drastic increase. With the
downturn of the oil price after September 2005, the price of coal
tar has already decreased and the supply deficit has also been
partly eased.


    1. The high crude oil price provides a firm support


Due to the inadequacy of crude oil output and the capacity
expansion of oil refining, there would be a supply deficit of
major chemical raw materials and oil products in China and their
prices will maintain at a higher level in future. China has
focused in the processing of heavy oil. By the end of 2005,
besides the completion of a 1.6 million t/a heavy oil project
in Yangzi Petrochemical Company Limited, at least 14 delayed
coking projects with a total capacity of over 14.0 million t/a
were under or planned to be constructed in China. Seven of them
have a capacity of over 1.0 million t/a. There are also many heavy
oil hydrogenation projects. Due to the constant capacity
increase in the heavy oil processing, heavy oil resources put
in the market became short resulting in the price increasing
constantly. The supply deficit of heavy oil resources has led
to a massive inflow of coal tar into the market to fill up the
deficit of heavy oil. The heat value of fuel oil based on coal
tar is around 4 200 kJ/kg lower than heavy oil. These two fuel
oils are circulating in the market according to a roughly fixed
price ratio. The crude oil price can hardly go down in the future
and the heavy oil price is determined by the crude oil price.
As the application of fuel oil holds a dominant position in coal
tar downstream consumption sectors, it is believed that the
future price of coal tar will be greatly influenced by the prices
of both crude and heavy oil.


    2. The output growth cannot match the fast-expanding
processing capacity


The output of coal tar in China has been increasing at an average
annual rate of around 18% from 2000 to 2005. Coal tar processing
projects kept being constructed and the average annual growth
of the coal tar processing capacity has reached more than 20%.
Especially in 2005, several large projects such as the 300
thousand t/a project in Shanxi Coking Co., Ltd., the 250 thousand
t/a project in Shanxi Hongte Coal Chemical Industry Co., Ltd.,
the 150 thousand t/a unit in Shanxi Jinyao Coking Co., Ltd. and
the 150 thousand t/a unit in Jiangxi Black Cat Carbon Co., Ltd.
started production. Capacity expansion has also been conducted
in many coal tar processing plants. The supply of coal tar has
therefore become tight.
   The output growth of coal tar is mainly determined by the
output of coke and the average recovery rate of coal tar. China
has exercised macro control on the iron and steel sector,
conducted compulsory elimination to indigenous coke and
modified coke through various measures such as raising the
admission threshold and put restrictions on coke export. The
output growth of coke will therefore have a further reduction.
If the coal coke chemical remains brisk in future, the supply
deficit of coal tar will last for many years.




Great change in demand distribution


     1. The development and utilization of coal asphalt still
holds a dominant position


Coal asphalt is a residual liquid generated in coal tar
distillation. The process and utilization of coal asphalt
determines the production and operation status of coal tar
processing enterprises. The apparent consumption of coal
asphalt in China was 1.66 million tons in 2004 and more than 2.30
million tons in 2005. The consumption growth will mainly come
from the fuel oil sector in future.


     2. The total supply of naphthalene will increase without
apparent oversupply


Naphthalene can also be extracted from heavy oil products such
as ethylene tar in the petrochemical industry, but the
extraction of naphthalene from coal tar has an absolute
advantage in both technology and cost. More than 95% of
naphthalene in the world comes from coal tar.
   The output of naphthalene (95N and refined naphthalene) in
China was around 450 thousand tons in 2004, the import amount
was 111 500 tons and the apparent consumption was 561 500 tons.
The average annual growth was around 15% from 2000 to 2005. It
is expected that the output will reach 600 thousand tons in 2010
and the apparent consumption will hopefully be more than 750
thousand tons.
    Industrial naphthalene in China is mainly us