Xu Rongbing, Jiang Yan, Sinopec Sales Company
Aluminum, as a kind of non-ferrous metal with the largest output in the world, is an indispensable basic raw material for national economic construction. Electrolytic aluminum producers mainly adopt cryolite - alumina molten salt electrolysis process to produce aluminum. Calcined petroleum coke is the irreplaceable raw material of electrolytic aluminum production.
Decreasing domestic supply year by year
1. Sinopec’s output is decreasing
Sinopec has 25 petroleum coke plants, most of which are located in the eastern part of China. Among them, Zhenhai Refining and Chemical, Tahe Petrochemical, Qilu Petrochemical and Tianjin Petrochemical are ranked top in delayed coking capacity. With imported high-sulfur crude oil as feedstock, Sinopec's affiliated refineries mainly produce high-sulfur petroleum coke, with medium-sulfur coke as supplement.
A part of Sinopec’s delayed coking capacities has been reduced or idled since 2018 as a result of technological upgrading of plants and start-ups of residue hydrogenation units. Accordingly, the supplier’s petroleum coke output has been decreasing year by year. In 2021, the output was about 10.4 million tons and the export volume was about 7.5 million tons (see Figure 1). It is expected that Sinopec will continue to trim its output as a positive response to the government’s stricter environmental protection and control measures during the 14th Five-Year Plan period (2021-2025).
Figure 1 Sinopec’s petroleum coke production in recent years
2. The output of PetroChina and CNOOC remains stable
PetroChina has 14 petroleum coke plants, most of which are located in the northeast and northwest regions, and the sales of petroleum coke products are not assigned by the giant supplier. With northeast and northwest crude oil as feedstock, PetroChina's affiliated refineries mainly produce low-sulfur coke, who are also the main 1# coke producers in China, including Daqing Petrochemical, Fushun Petrochemical, Karamay Petrochemical, Jinxi Petrochemical and Dagang Petrochemical.CNOOC has four petroleum coke plants.With domestic offshore crude oil as feedstock, CNOOC’s affiliated refineries mainly produce medium and low-sulfur coke. The capacities are largely concentrated in the eastern coastal areas. CNOOC Huizhou Refinery is ranked No. 1 in terms of capacity and output, followed by Ningbo Daxie Corp.
The overall output of PetroChina and CNOOC has witnessed little change in recent years (see Figure 2), as only Yunnan Petrochemical’s new delayed coking unit has been put into operation and Huizhou Refining and Chemical’s new residue hydrogenation unit for Phase II project has been built. The output of the two suppliers is likely to be flat in the future.
Figure 2 Petroleum coke output of PetroChina and CNOOC in recent years
3. The output of regional refineries is decreasing
In 2021, the delayed coking output of regional refineries was ranked the largest, accounting for 44% of the national total (see Figure 3). The refineries were mainly located in Shandong, Liaoning, Jiangsu and Zhejiang, and in Shandong, the largest production and consumption area of petroleum coke in China, the refineries occupied at least the half of the local refining capacities. Domestic petroleum coke production has been increasing since 2016. Panjin Haoye's 1.4 million t/a delayed coking unit, Shandong Shangneng's 800 kt/a delayed coking unit, Zhejiang Petrochemical's 3.2 million t/a delayed coking unit and Fangyu's 1.4 million t/a delayed coking unit have been put into operation successively, contributing to an increase in the output of regional refineries year by year (see Figure 4).
Figure 3 Proportion of China's petroleum coke production in 2021
Figure 4 Petroleum coke output of regional refineries and others in recent years
Regional refineries may gear up to drive out of laggard capacities in 2022, as the profit of refineries is decreasing sharply in a new reshuffle cycle of the refining industry. The crude oil quota of non-state-owned refineries is shrinking and the adoption of coking materials in residue hydrogenation process is increasing. However, an increase in the output of petroleum asphalt results in a reduction in the petroleum coke output. The reshuffle in the oil refining industry and the dismantling of some regional refining units will curtail the production of regional petroleum coke faster. It is expected that the output of regional refineries’ petroleum coke will decrease year by year in the future.
In addition, petroleum coke and its calcined products will be strictly controlled for the environmental protection in the long-term development plan, and this headwind will be taken into account before the construction and start-up of new coking units in the future. There are many domestic petroleum coke suppliers nowadays, but with new residue hydrogenation projects coming on stream and delayed coking units being driven out of the market, the overall capacity of domestic petroleum coke will decrease.
Stable domestic demand
Electrolytic aluminum is the main downstream product of petroleum coke, accounting for about 65% (see Figure 5). There is no substitute for petroleum coke in the production of electrolytic aluminum, and the development of electrolytic aluminum has a crucial impact on the demand for petroleum coke in turn. The demand for petroleum coke remains robust, given that petroleum coke is still the basic raw material of electrolytic aluminum.
Figure 5 Petroleum coke demand by application in 2021
Domestic electrolytic aluminum production has increased rapidly since 2011, pushing up the demand for petroleum coke in synch. The total output of electrolytic aluminum has almost doubled around the decade, and the consumption of petroleum coke has correspondingly increased by more than 12 million tons (see Figure 6). The output of electrolytic aluminum has been firmly high since 2020, and the electrolytic aluminum replacement capacities have been put into operation, so it is expected that there will be little change in the total output.
Figure 6 Changes in electrolytic aluminum production and petroleum coke consumption from 2011 to 2021
The demand for aluminum will increase in line with the development of new energy vehicles, the construction of urban rail transit and the growth of new energy such as photovoltaic hydropower. In the meanwhile, the use of petroleum coke as fuel will be further limited amid carbon neutralization and environmental protection policies. Therefore, the demand of petroleum coke from the electrolytic aluminum sector will continue to rise, and the development of electrolytic aluminum will be more closely tied to the petroleum coke market.
To sum up, the supply side of petroleum coke will keep tightening during the 14th Five-Year Plan period, and the domestic petroleum coke market will be in tight balance.
Steadily increasing import volume
Petroleum coke import volume has been increasing steadily except in 2019 (see Figure 7). The volume has capped an annual increment of 1 million tons in recent five years. In 2022, the import volume of fuel coke is expected to decrease compared with that in 2021, given that coal prices are at a mid and low level, and the import volume of sponge coke will be stable or increase slightly.
Figure 7 Import volume of petroleum coke from 2016 to 2022
The majority of imports is high-sulfur grade (see Table 1), and most of them are from the United States, Saudi Arabia, Canada and Taiwan’s Formosa Plastics. The imports of coke with less than 3% sulfur are mainly from Russia, Colombia and Oman.
The import volume of sponge coke will keep rising on the back of stable domestic demand, while there are still certain policy risks in importing high-sulfur petroleum coke, despite firm demand in China.
Demand outlook
The annual output of petroleum coke is averagely about 26.9 million tons in China, with 4 million tons for captive use, 1 million tons used in graphite electrode industry, 300 000 tons for export and 4 million tons used in fuel industry. The demand for petroleum coke from the electrolytic aluminum sector is about 21 million tons on an annual basis, of which about 340 tons of aluminum sponge coke have been dependent on importing for long time. The spread between domestic petroleum coke output and apparent consumption has become bigger and bigger since 2014. The spread hit 12.77 million tons in 2021. In the context, it is expected that petroleum coke imports will continue to increase in the future, as domestic demand will outpace supply in some time periods (see Figure 8).
Figure 8 Production and consumption of petroleum coke in China from 2014 to 2022
Petroleum coke consumption will further increase with the stable growth of downstream electrolytic aluminum. The petroleum coke market is likely to be in tight balance, as some new delayed coking units will be put into operation while some units will be idled.
In a nutshell, the domestic petroleum coke supply will be slightly short to cover demand, and the market will face a reshuffle. As domestic petroleum coke output keeps decreasing, the import volume will take bigger and bigger portion in the domestic market. Such imbalance between supply and demand will push the prices of petroleum coke to a higher level. The prices are expected to fluctuate at high levels if there are no new policies and emergencies in place.
