Petcoke rumours continue

There’s an old saying that nature abhors a vacuum, and it is proving true with the China petcoke market. In the absence of any official directive, rumours are running rife.

Some overseas-based consultancies are confidently predicting that there will be no impact on the CPC or anode market. Another news service published a piece in the last few days saying that a Chinese calciner was worried about taking delivery of some Saudi Arabian coke because of the impending new regulations. But when I spoke to the MD of that company this morning, he knew nothing about it.

There is still a lot of talk about the alleged Sinopec requirement on customers of high sulphur petcoke. The rumour is that Sinopec is demanding that calciners and others must be able to show that they have been certified by the EPA for sulphur emissions. Again, we have not yet seen a document along these lines, but one calciner told us that as much as 50% of China’s calciners do not have this certificate.

One rumour even had it that the threshold for “unqualified” petcoke will be 4% sulphur. But that one came from a source not directly inside the petcoke market.

In short, with just a few days of the year left, still there is no clarity. There still has not been any announcement, there has been no official document from Sinopec, and Customs department say that they have not received any notice to ban imports of high sulphur coke.

If we distill all the rumours and weight them according to their source, it appears the following scenario will unfold, namely that imports of high sulphur petcoke will stop. Sinopec will then control the domestic high sulphur petcoke market, and to appease the authorities they will require customers to produce an EPA certificate. Exports of high sulphur petcoke will likely continue, but any “good” fuel petcoke will be retained in China where prices will likely respond to the shrinking supply.

As for low sulphur petcoke, the clarity is even worse. If supply of high sulphur petcoke shrinks with the loss of imported material, will China’s aluminium smelters be forced to switch to low sulphur petcoke? With no blend material available, what will happen to domestic cokes that normally get blended to reduce their trace elements? Will the cutbacks to aluminium production reduce demand for low sulphur petcoke, or will the promises of cuts be watered down by local governments giving more subsidies?

Probably one thing is for sure. Even if there is no announcement in the near future, the market is so skittish now that players are taking safe positions. Add the quiet time over Christmas and the hiatus period between now and Chinese New Year, and it’s possible we won’t get real clarity until at least March.

Follow the power

In the absence of hard facts, one has to ask the question, who stands to gain from all this uncertainty? Certainly Sinopec will benefit from a ban on imported petcoke, and it is possible that the source of some of the rumours is the petrochemical behemoth. But as one Chinese insider told us this morning, it is no longer a safe play to spread rumours in China. Where before people might get a rap over the knuckles for spreading rumours, nowadays such a practice can lead to a prison sentence.

That really only leaves two possibilities - that the government is deliberately withholding direction, or that the bureaucracy doesn’t know or doesn’t care about the confusion they are causing. That’s how things often work, especially in China. What may seem like confusion and lack of clarity to players inside the industry is simply not an issue for bureaucrats. They have to deal with issues such as getting the right approvals and managing the various conflicting interest groups - of which Sinopec is one. In a country where bureaucrats are being scrutinised for any sign of corruption, it is a fair bet that nobody in authority is going to act without the approval of higher authorities. Possibly a good formula for the lack of action.

The power is with the bureaucrats right now, and their lack of direction is causing confusion, but probably if you asked them, they would say getting sign off to issue directives is the problem. But that’s speculation on my part - filling in the vacuum.