Chi Hongquan, Sinopec Qilu Petrochemical Company

Along the prebaked anode industry chain, prices of upstream products remain high due to robust demand; the capacity of prebaked anode is surplus, which squeezes the margin room; downstream markets see limited developing room as the capacity is compulsively designated for the smooth implementation of the target of Peaking Carbon Dioxide Emissions and Carbon Neutrality. In 2021, the domestic prebaked anode capacity was at 28.616 million t/a, the output at 20.98 million tons, the export volume at 1.9147 million tons, and the apparent consumption at 19.07 million tons.

Prices of upstream petroleum coke and coal tar pitch hit new highs due to short supply 

As a carbon material and high calorific value fuel, petroleum coke is widely used in the fields of metallurgy, electrolytic aluminum, ceramics, and power generation in China, and prebaked anode accounts for 60% of the total demand. With the accelerated implementation of the target of Peaking Carbon Dioxide Emissions and Carbon Neutrality, the application of petroleum coke in new materials and new energy has been growing rapidly, resulting in the shortage of supply and influx of a big quantity of foreign goods to cover domestic demand. The output of petroleum coke in China was at 30.295 million tons and the import volume at 12.64 million tons in 2021 (see Figure 1). The domestic prices of petroleum coke have been rising sharply since 2022, with new highs recorded continuously. At the end of June, the ex-work prices of petroleum coke in Shandong reached RMB5 900/ton.

Figure 1 Petroleum coke output growth in China

Coal tar pitch is mainly used in the production of prebaked anode carbon for aluminum, needle coke and blackening oil, which account for 55%, 19% and 16% respectively. The strict control of China's environmental protection policies over the coking industry forced many coking and coal tar deep processing producers unable to meet the environmental protection standards to shut down plants, and as a result, the output of coal tar pitch was maintained at about 5.5 million tons for many years. The output of coal tar pitch in China was at 5.54 million tons and the export volume at 608 200 tons in 2021. Later, with the growing demand for prebaked anode and the recovery of exporting, the domestic supply of coal tar pitch has exceeded demand, pushing the prices up continuously. As of July 2022, the prices in Shandong rose to about RMB5 900/ton. The industry has been robust for more than three years. 

Downstream electrolytic aluminum industry is strictly controlled under the environmental protection policies, with the capacity compulsively limited

Electrolytic aluminum industry is strictly regulated under the strategy of Peaking Carbon Dioxide Emissions and Carbon Neutrality, given its high energy consumption and high carbon emission. It is an important way to reduce carbon emissions of electrolytic aluminum by using high-quality prebaked anode to reduce cell voltage and improve current efficiency. According to the capacity limitation by the Ministry of Industry and Information Technology, the upper limit of domestic electrolytic aluminum capacity is about 45 million t/a, and new electrolytic aluminum projects must carry out equivalent or reduced capacity replacement. The replacement rate of domestic electrolytic aluminum capacity has been accelerated in recent years under the strict control on capacity, and as a result, the proportion of high-quality capacity has increased, but the growth rate is still far behind that of demand. The capacity increments have only been 500 000 t/a since 2021. As of the first quarter of 2022, the total capacity was at 45.98 million t/a in China, and the effective capacity at 43.25 million t/a.

The electrolytic aluminum industry is the biggeset consumption area of China's prebaked anode. China's electrolytic aluminum output was at 38.53 million tons in 2021, and the consumption of prebaked anode was at 18.9 million tons, accounting for 90.1% of the total output (see Figure 2).

Figure 2 Electrolytic aluminum capacity/output growth in China

The electrolytic aluminum market will remain robust in 2022, with strong demand. It is estimated that the import volume will reach 2 million tons and the consumption will reach 41.66 million tons during the year (see Figure 3).

Figure 3 Electrolytic aluminum consumption growth in China

The profit of prebaked anode is squeezed by upstream and the developing room is limited by the downstream

1. Production

There were 107 prebaked anode producers in China at the end of 2021, 98 of which were effectively running with the actual capacity at 28.616 million t/a. The average annual growth rate of capacity was 3.4% from 2017 to 2021.

The capacity of prebaked anode in China is concentrated, mainly distributed in Shandong (31%), Henan (12%), Xinjiang (12%), Inner Mongolia (8%) and Gansu (5%) (see Figure 4).

Figure 4 Prebaked anode capacity distribution in China in 2021

The government has been promoting the structural reform of the aluminum smelting industry in recent years, as the transfer of electrolytic aluminum plants from the north to the south has aggravated the imbalance between supply and demand among prebaked anode regions.The prebaked anode supply in the eastern markets of China is surplus by about 6 million t/a, the supply in the western markets is short of more than 2 million t/a, and the supply in the southern markets is short of more than 3.3 million t/a. Year 2022 will see co-existence of capacity replacement and new capacity of prebaked anode. It is estimated that capacity will increase by about 600 000 t/a to 29.216 million t/a during the year (see Figure 5).

Figure 5 Capacity/output of prebaked anode growth in China

The huge demand from the electrolytic aluminum sector translated to the sustainable development of prebaked anode industry in China from 2017 to 2021. The domestic output grew steadily during the period, with an annual compound growth rate of 2.5%. The output reached 20.98 million tons in 2021, up by 5.19% year on year. In 2022, the output is expected to keep growing moderately, with an increase of 500 000 tons or 2.38% year on year.

2. Import and export 

As China is rich in coal tar pitch and petroleum coke resources, the relatively low cost of raw materials provides competitive edge for prebaked anode in the international market. As a result, the export volume of prebaked anode is far bigger than the import volume. The annual average import volume of China's prebaked anode was only about 1 500 tons from 2017 to 2021. The export volume increased to about 1.33 million tons during the period, with an average annual growth rate of 11.5%. In 2021, the export volume hit a new high of 1.9147 million tons, up by 20.1% year on year. It is estimated that the export volume will increase by 300 000 tons to 2.215 million tons in 2022. Looking ahead, exporting will be an important channel to digest domestic capacity (see Figure 6).

Figure 6 Growth of China's prebaked anode export volume

3. Supply-demand status and forecast

The capacity and output of China's prebaked anode grew at an average annual rate of 3.4% in synch from 2017 to 2021. Fueled by the rapid growth of China's electrolytic aluminum production in recent years, the demand for prebaked anode increased at an average annual rate of 4.6%. The apparent consumption rose to 19.07 million tons in 2021, with an average annual growth rate of 2.41%. In addition, the export volume has been rising sharply for consecutive years, so the supply-demand of domestic prebaked anode is shifting from surplus to tight-balanced (see Figure 7).

Figure 7 Supply and demandbalance sheet of prebaked anode in China

According to statistics, there will be nine prebaked anode projects to be built in China from 2022 to 2023, with a total capacity of 2.8 million t/a. Among them, five projects are planned to be put into production in 2022, with a total capacity of 1.75 million t/a. The total capacity of prebaked anode will reach 31.41 million t/a in China by the end of 2023. Table 1 shows the details of prebaked anode projects under construction.

Although the authorities have issued documents to restrict the blind expansion of electrolytic aluminum capacity for many times in recent years, the demand for aluminum, as an important application material for lightweight automobile, will keep rising, providing room for the development of the prebaked anode industry. It is expected that the supply of China's prebaked anode will grow in tandem with the output of electrolytic aluminum in the future. The Ministry of Industry and Information Technology issued the Standard Conditions for the Aluminum Industry to forbid the construction of independent carbon anode projects for aluminum with a capacity of less than 150 000 t/a. It has been proven that projects with more than 300 000 t/a is more practical. These factors heighten the threshold for new capacities of prebaked anode. The laggard capacity of small and medium sized plants will be driven out of the market as a result of stronger demand for prebaked anode and increasing operating rates. At the same time, the Ministry of Industry and Information Technology has set the upper limit of domestic electrolytic aluminum capacity at 45 million t/a, equivalent to the annual demand for prebaked anodes of about 22.5 million tons per year. Apart from export volume, the annual demand for domestic prebaked anode will increase by about one million tons by 2025. The above estimates are based on the average operating rate at present. If calculated according to the actual capacity, the prebaked anode will remain surplus in 2025.

By analyzing China's prebaked anode industry chain, it can be seen that the domestic demand for upstream petroleum coke and coal tar pitch is strong, and the prices have hit new highs. The higher raw material prices are adding production costs, which squeezes the margin room for prebaked anode. A large amount of afterheat generated by the calcination of petroleum coke is used to produce steam or power, which, in turn, becomes the main way for prebaked anode producers to reduce costs and gain profits. The domestic capacity of prebaked anode is surplus, while the demand almost relies on the development of the downstream electrolytic aluminum industry, which, however, is strictly regulated under the strategy of Peaking Carbon Dioxide Emissions and Carbon Neutrality during the 14th Five-Year Plan period (2021-2025). The consequent adjustment of the industrial structure as well as the bigger push for energy saving and consumption reduction by setting the upper limit of prebaked anode capacity are restraining the growth room of the prebaked anode demand. Therefore, in the future, increasing export volume may be the main way to consume excessive capacity.