Continuous Ramp-up of China's Coking and High-temperature Coal Tar Deep Processing Capacity
Click:0    DateTime:Jan.11,2022

Bian Xiaosong, Sublime China Information (SCI)

The capacity of coking and high-temperature coal tar deep processing increased in China during 2021, but the operating rates were on a fall, resulting in tightening supply of high-temperature coal tar. This, combined with stronger downstream demand, drove the price of high-temperature coal tar to hit a record high in 2021. Table 1 shows the breakdown of China's high-temperature coal tar production from 2021 to 2022. Coal tar pitch, the core product of high-temperature coal tar deep processing, outperformed during the year. For example, in Shandong, the price of domestically-made coal tar pitch marked a year-on-year increase of 86.03%, which enabled deep processors to turn losses into profits.

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Analysis of key data

1. Capacity of coking and high-temperature coal tar deep processing grew at a rate of 13.96% and 3.57% respectively

As shown in Figure 1, the capacity of domestic coking and high-temperature coal tar deep processing continued to grow in 2021, and even the former reached a five-year high with a growth rate of13.96%. According to the data of the coking capacity in recent five years, the capacity fluctuated widely, illustrated in a W-shape curve, which was mainly attributed to overcapacity cutting and capacity replacement policies. A big number of capacities were driven out of the market from 2017 to 2018, and the coking capacity fell to the lowest level in five years by 2018. Some replaced capacities were started up in 2019, which partially made up for the retreated capacities. Therefore, the capacity increased slightly. In 2020, however, massive excessive capacities were driven out of the market, especially in Shandong and Shanxi where 77.21 million tons of coking were totally eliminated. The growth rate of coking capacity in 2021 hit a five-year high, mainly because there were fewer capacities eliminated and the capacities of replaced units were big, many of which were put into operation. About 52.97 million tons of coke oven capacities are expected to increase in the next three years, and as such, China's coking capacity is likely to grow slightly.

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Figure 1 Capacity growth of coking vs. deep processing industry, 2017-2021

The domestic high-temperature coal tar deep processing capacity has been growing in recent five years, and it reached a record high in 2021. There are three reasons for the continuous growth of capacity. First, China's high-temperature coal tar deep processing industry is relatively mature, and the threshold to the industry is not high. Second, the operation is flexible and is not easy to be eliminated. Third, enterprises are gradually expanding scale along the industrial chain, so capacity expansion and industrial chain development are obviously seen. As the industrial capacity optimization continues, some producers keep their new coal tar deep processing units unlaunched. It is expected that the capacity of China's coal tar deep processing may grow stably or faster in the next 2-3 years.

2. The prices of high-temperature coal tar and deep-processing products rose sharply, and especially the prices of coal asphalt that gained by a whopping 86%

As shown in Figure 2, China's high-temperature coal tar and deep-processing markets performed well in 2021. The average prices of high-temperature coal tar, coal tar and industrial naphthalene were RMB3 764.22/ton, RMB4 727/ton and RMB3 854/ton, up by 63.88%, 86.03% and 3.52% respectively compared with 2020. Among them, the prices of high-temperature coal tar and coal tar reached a record high. The price change of raw material high-temperature coal tar was mainly determined by supply, demand, policy and other factors. Supply was the key factor affecting the price change throughout the year. The supply tightness of high-temperature coal tar continued due to the limited operating rates of coking plants. In addition, the capacity of downstream deep processing and carbon black grew at a faster pace, leaving a huge need for raw materials and hence underpinning the prices.

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Figure 2 Monthly average of coal tar vs. deep processed products in 2021

The coal tar pitch market outperformed among high-temperature coal tar deep-processing products this year, largely attributed to an increase in the demand. The bullish domestic aluminum market drove up the anode block market, so the operating rates of carbon plants started to increase and hence the demand for coal asphalt rose. In the meanwhile, the capacity of needle coke continued to increase, and with a rebound in the prices, the producers lifted demand for coal tar pitch. The maintenance seasons for high-temperature coal tar deep-processing plants in spring/autumn boosted the prices to record a new high. On the other hand, the uptrend in the prices of crude naphthalene was narrowed in line with the change of supply and demand balance, and there were only two waves of wide-range rises in the whole year.

3. Gross profit of coking and high-temperature coal tar deep processing products increased

As shown in Figure 3, China's coking industry enjoyed high profits in the most time of 2016-2021, and the high-temperature coal tar deep processing market reported the narrowest margin room along the industrial chain. Year 2021 saw a rise in the gross profit of both coking and deep processing industries.During the year, the gross profit of the coking industry in Shandong was at CNY504/ton, an increase of 36.95% year on year. However, the profit rate decreased, mainly because the production cost kept rising in line with sharply increased feedstock prices, and the subsequent coking price rise failed to catch up with the cost rise due to the production cutbacks in downstream steel & iron industry.

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Figure 3 Profit margin of coking vs. deep processing from 2016 to 2021

The profit rate of domestic high-temperature coal tar deep processing increased in 2021, which was mainly because the prices of the core product coal tar pitch continued to rise. Although other deep processing products underperformed and some of them were even inverted with the cost of raw material high-temperature coal tar for a long time, the price spread between coal tar pitch and the raw material widened, and even reached CNY1574/ton from September to October, contributing to the biggest profits of the year in the deep processing industry and hence turning the industry from loss to profit.

4. The operating rates of both coking and high-temperature coal tar deep processing industries decreased in 2021

The operating rates of China's coking plants was 78.5% in 2021, down by 2.1 percentage points compared with 2020, a decline for the first time in five years. This was mainly attributed to the overcapacity reduction, implications of policies and tight supply of raw materials. The operating rates in the first half of the year were higher than those in the second half, because the tightening supply and higher prices of raw materials in the second half of the year exerted cost pressure. In addition, regional policies and weakened downstream demand also affected the operating rates.

The operating rates of domestic high-temperature coal tar deep processing plants was 47% in 2021, down by 0.42 percentage points compared with 2020. The rates kept falling in recent five years, although output increased. The reason for the situation was that the market was much surplus, leading to furious competition among producers. Figure 4 shows the details.

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Figure 4 Operating rates of coking and deep processing plants from 2017 to 2021

5. The import and export dependence of coal tar and deep processing products were not big

As shown in Figure 5, China's high-temperature coal tar and deep processing products were barely covered by importing, as the domestic output largely met the demand. In 2021, the import dependence of high-temperature coal tar and industrial naphthalene decreased, while the import dependence of coal asphalt increased slightly. The needs for raw material high-temperature coal tar are large, but the import volume decreased in 2021, mainly because of the regulatory tightening on the hazardous wastes. In addition, the higher operating rates of foreign deep processing plants tightened the supply ofcoal tar, which was another contributor to the decline in import volume. The import volume of industrial naphthalene decreased by 57.29% compared with that in 2020 as a result of supply gluts and weakened demand from downstream water reducing agent in China. Besides, the prices of industrial naphthalene stayed low for long, leaving the imported products less competitive. Domestic demand is expected to shrink continuously, so the import volume of industrial naphthalene is likely to decrease further in coming 1-2 years.

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Figure 5 Import dependence of coal tar and deep processing products from         2017 to 2021

As shown in Figure 6, China's export dependence on high-temperature coal tar and deep processing products remained largely low, but it increased in 2021. The export dependence on high-temperature coal tar, industrial naphthalene and coal tar pitch was 0.05%, 0.31% and 6.96% respectively. The reason for the increase in the export of industrial naphthalene was that the domestic output increased and producers lifted exports to alleviate the pressure on domestic sales. The reason for the increase in the export of coal tar pitch was that the operating rates of foreign carbon plants increased after resumption and the demand for domestic coal tar pitch strengthened.4-P6

Figure 6 Export dependence of China's coal tar and deep processing products     from 2017 to 2021

     It is expected that the capacity of China's coking and high temperature coal tar deep processing plants will continue to increase in 2022. The prices are likely to soften, as the prices of most products hit record highs in 2021 in addition to the increasing capacities. The capacity utilization rate and gross profit level are expected to decrease.