Petroleum Coke — Market Supply & Demand in China
Year:2016 ISSUE:8
COLUMN:ORGANICS
Click:292    DateTime:May.23,2016
Petroleum Coke — Market Supply & Demand in China

By Jin Yanchun, PetroChina Daqing Petrochemical Co., Ltd.

Petroleum coke is generated by thermal cracking of heavy oil that is left over from the distillation of crude oil. Petroleum coke can be used in making graphite or chemicals, or in smelting, according to its quality. High quality, low sulfur cooked coke can be used to make ultra high power graphite electrodes and some other special carbon products. Large amounts of mid-sulfur ordinary cooked coke are used in aluminum smelting, and high-sulfur ordinary green coke is used in making chemicals like calcium carbide, silicon carbide, etc.

Supply and demand

China’s petroleum coke producers are located mainly in Shandong province, East China and Northeast China, etc. Shandong supplies the most: 40% from Shandong, 16% from East China, 11% from Northeast China, 9% from North China, 8% from Northwest China, 7% from the regions along the Yangtze River and 9% from South China.
Petroleum coke capacity was 118.1 million t/a in 2014, and 120.5 million t/a in 2015. At present, China has nearly 90 producers. Sinopec operates 43% of the capacity, down 1% YoY, PetroChina operates 13%, local refineries 37% (up 2% YoY) and CNOOC 7%. While Sinopec still ranks first, the capacity of local refineries is gradually increasing and its impact on the domestic supply will continue to grow.
China’s output of petroleum coke rose year-on-year, staying over 24 million tons during 2012-2014; however, in late 2015, the year’s output was projected to be considerably lower than that of 2014. According to statistics, in the first ten months, output totaled 21.25 million tons, so the year’s was likely around 25.5 million tons.
China’s output of petroleum coke increased year-on-year as delayed coking units were commissioned; however, with China’s strict control on environmental protection since 2014, capacity growth has gradually slowed down. With the increased number of residue hydrogenation units being put into operation in refineries, the introduction of delayed coking units will slow down even further. At present, refineries that have delayed coking units still plan to start up their residue hydrogenation units, and according to statistics, these refineries are owned by Sinopec Jinling Petrochemical Co., Ltd., Sinopec Jingmen Petrochemical Co., Ltd., Sinopec Maoming Petrochemical Co., Ltd., Sinopec Shijiazhuang Refining & Chemical Co., Ltd., Sinopec Yangzi Petrochemical Co., Ltd., Sinopec Zhenhai Refining & Chemical Co., Ltd., PetroChina Lanzhou Petrochemical Co., Ltd., PetroChina Liaoyang Petrochemical Co., Ltd. and Huizhou Refinery Company.  
    
Consumption mix

In China, the metallurgy sector is still the largest consumer of petroleum coke, and through the carbon processing process, the terminal petroleum coke is mostly supplied to electrolytic aluminum and iron/steel sectors. During 2008-2012, the technology of replacing heavy oil with petroleum coke changed the consumption mix of petroleum coke to a certain extent, and the demand for fuel grade petroleum coke increased. However, since 2013, with the introduction of the Air Pollution Prevention and Control Action Plan, China has exercised more stringent control over sources of air pollution. So the amount of petroleum coke supplied to the fuel sector (power plants, as well as makers of glass, cement, iron/steel, ceramics) has been reduced constantly. At present, domestic consumption is 70% for carbon, 18% for fuel (including in-house consumption in the CFB boiler of Sinopec), 7% for silicon, 4% for exports and 1% for other purposes.
In 2015, demand was weak for carbon used in making either steel or aluminum. In 2016, the trend of the carbon market will crucially depend on the downstream sectors.
(1) The development of electric furnace steel-making has a bright future, but the overall downturn of the iron/steel sector restricts the rebound of carbon used in making steel
Of course, the operating rate and market share of electric steel furnaces will have a significant impact on demand for carbon in the steel sector. Around the world, the electric furnace will still be the main steel-making method. Due to its great advantages in environmental protection, the electric furnace will become the development focus of China’s steel-making sector. The development of auto manufacturing, the upgrading of oil exploitation equipment, modern national defense and high-speed railway construction will need electric furnace smelting of special steel.
In general, in spite of many difficulties, electric furnace steel-making has a bright future in China, and demand for carbon in the steel sector will be considerable; however, the market price of carbon used for steel will be determined by the overall economic environment and the cost of raw material petroleum coke. The steel market is heavily influenced by the economy, so it is unlikely that the prices of carbon used for steel will rebound anytime soon.
(2) The electrolytic aluminum sector is weak, so no market improvement for carbon used there can be expected in the foreseeable future
With increasing scale and ongoing M & As in the aluminum sector, some domestic aluminum enterprises with low costs still have expansion plans, with a combined additional capacity of around 2.985 million t/a; however, those aluminum enterprises burdened high costs will continue to withdraw from the market, removing no less than 3.0 million t/a capacity from the sector. In addition, it is expected that the Ministry of Industry and Information Technology of China will eliminate outdated capacity of around 400 kt/a in 2016. To sum up, aluminum smelting capacity will perhaps decrease in 2016, and the pressure of oversupply is expected to ease. In 2016, demand from real economy sectors such as real estate and auto manufacture – both large consumers of aluminum – is expected to keep hovering at a low level, and the development of new fields including “aluminum instead of copper” and “aluminum instead of steel” will be far slower than projected earlier.
Due to weak demand immediately downstream and among terminal consumers, the prices of carbon used for aluminum will be suppressed in the short term. With stable output of downstream electrolytic aluminum, the sales volume of carbon used for making aluminum will also be stable; however, prices will continue to be slack and profits will continue to be thin.

Import and export

In 2015, the monthly average import volume of petroleum coke was significantly higher than that in 2014, reaching the highest level, 624.4 kt, in July, and the average monthly import volume for the year was around 500.7 kt, up 1.48% YoY. In the first three quarters of 2015, the total import volume of petroleum coke reached 4.51 million tons, up 1.49% YoY.
In 2015, the domestic price of petroleum coke was low, and domestic purchasing power was relatively strong, so China’s export volume of petroleum coke dropped drastically. In the first nine months, the total export volume of petroleum coke was 693.2 kt, down 24.69% YoY, according to statistics. In May, the monthly export reached 140.2 kt, the highest level of the year.

Market price

In the last two years, fluctuation has increased in the petroleum coke market, and prices have declined constantly. The domestic average ex-factory price of petroleum coke was RMB1 123/t in 2014 and RMB1 070/t in 2015. In 2015, the price of petroleum coke rose in the first quarter and began to decrease in the second quarter due to the weak national economy. In the third quarter, the prices of various types of petroleum coke declined faster. Restricted by enterprises’ tight funds, the prices of petroleum coke are expected to continue declining, at least until the end of 2015. Indeed, so far this year, the prices have slid continually.
In the next few years, Sinopec’s petroleum coke output will continue to shrink due to processing mostly imported high-sulfur crude oil. With stable operation of PetroChina’s units in Northeast China and a stable supply of raw materials, the firm’s output and price of petroleum coke will not change much. The output of petroleum coke from local refineries will increase, and the price is likely to change relatively little.

Future prospects

Due to China’s new environmental protection law, the index standards of imported coke will improve, and the import volume of high-sulfur coke will gradually decrease or even dwindle to nothing. At the same time, in view of the present short supply of shot coke, players can seek sources of high-quality shot coke.
Due to factors like overcapacity and shrinking demand, the slump in the coal market will continue. Once the price of petroleum coke in the electrolytic aluminum sector cannot increase, the coal market will have significant negative impacts on the petroleum coke market. In the current situation, with the long-term price of coal bottomed out, the troubles of petroleum coke market may well last a very long time.
China’s consumption mix will change constantly, and due to the nation’s ongoing energy-saving and emission reduction efforts and protection of the environment, the entire iron/steel sector will enter a period of deep adjustments, resulting in less demand for petroleum coke.
On the whole, the economic environment is unlikely to change much in 2016, and the petroleum coke sector and its downstream sectors will keep reshuffling.