Review and Outlook for Coal tar and pitch

Since the Chinese New Year break, the spot price of aluminum has jumped to RMB14,000/t. Positive macro-economic performance and signals of limited supply overseas are pushing the future market up and gave a strong support to spot market. The recent concerns about cuts to capacity because of environmental restrictions have contributed.

As aluminum production grows, demand for the raw materials that go into the pot is also increasing sharply, including coke, coal tar, pitch, CPC and anode. Prices for commodities such as coal tar and coal tar pitch are rising strongly, but not just because of increasing demand.

All these industries – anodes, CPC, pitch etc – went through a tough period of environmental inspections in 2016, and that is continuing now in 2017. Coal, as a major energy source but also the major source of pollution, has been replaced to a small extent by natural gas in recent years in order to ensure good air quality, but the results were poor. Through this winter that we are just exiting, days of heavy fog and haze increased. In order to ease such serious condition, the Ministry of Environmental Protection has been forcing polluting enterprises to shut down. Entering into 2017, the MEP issued a new draft policy to improve environmental conditions surrounding Beijing and Tianjin. For coal tar and pitch, the major producing regions are in Hebei, Shanxi and Shandong provinces, provinces which are also the focus of the new ruling from the MEP. It has virtually cemented into place our outlook for coal tar and pitch.  The operating rates of coal tar and pitch plants will be at a low level over a long term period, and that will put big pressure on prices.

If you are a subscriber to AZ China’s Weekly Carbon Monitor, you can monitor that coal tar price with our 8-week moving average. The next chart of coal tar and pitch average price should give you a clear image to imagine what happened in past months.

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All carbon products have the general problem of being dirty industries, but for coal tar products, the individual problem is the basis in the steel industry. Efforts to reduce over-capacity in steel have killed lots of small coal-coking processing factories by now, which directly tightened coal tar output. As for carbon black, as the major aspect demand of coal tar, the industry boost is absorbing much more resources and finally pushed up coal price constantly. This year, carbon black industry will eliminate 200kt but add 600kt new capacity. It means coal tar will end up more in carbon black but less will go into the other products that can come out of a pitch plant.

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Overall, there are many indications that the operating rate of coal tar industry will remain at a low level, and coal tar and pitch market prices will climb constantly, especially going into next winter.

Your best choice is to keep in touch with us at AZ China, to keep across what’s going on in the industries that so few people watch, but which can have a devastating impact on the cost of making aluminum – or could even stop a smelter.

We acknowledge and thank Rutgers for the use of the feature image, which is from their website.

Environmental inspection – Coming again

 

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The Ministry of Environmental Protection (MEP) has proposed measures in a draft policy document aimed at curbing the deteriorating air quality around key cities such as Beijing, Tianjin and the surrounding areas. The draft rule includes a total of 28 cities in Shandong, Henan, Shanxi and Hebei provinces.

Yesterday, it was announced that the first 2017 inspection will officially start 15th February and last for one month. This could be an important litmus test of the new draft rules.  If the inspection team implement the rules mentioned in the draft, we can see coal, alumina, aluminium and carbon industry will all have a major restriction. However, the extent of the impact is dependent on how strict the inspection is!

Since July last year, the first round inspection started in Henan Province.  Almost all carbon producers were seriously affected  or even shut down. In the following months, Shandong, Inner Mongolia, Hubei, Chongqing and Jiangsu all saw inspections and had some factories closed. It’s a good thing that the authorities are acting to improve the air pollution.  The not-so-good outcome caused by the inspection is market disorder – supply shortages pushed mainstream price up hundreds of yuan. High price does not mean high profits or healthy market condition. Manufactures are frightened by endless inspection and endless policy requirements.

To make matters worse for producers and market participants, China’s annual “Liang Hui” – the annual week-long meeting of Parliament – will take place in March.  It’s likely that some measures will be put in place to ensure blue skies during that week.

What we heard from carbon factories is they don’t know what the central and local governments will do in the new round of inspection.  But producers really want to understand and accept if they indeed have the right levels of pollution treatment equipment. Most carbon plants were able to return to full production following last year’s inspections, except in Gongyi where they are still under limitation.  The carbon plants cannot afford to spend capital on new equipment if the government is going to change the rules.  They can’t afford the capital, and they can’t afford to be shut down again.

Hopefully, the inspection teams will bring clarity and consistency to the producers and therefore to the market. Meanwhile, it will be a substantial and effective way to improve air quality.

Up, up and up – anode prices rising rapidly

Anode prices are rising rapidly
Anode prices rising rapidly

The feature chart tells a story that subscribers to our Weekly Carbon Monitor are already across.   Since the start of January, prices have taken off. The lower quality material has risen by 17.5% in 2 months, and that’s on an 8-week moving average basis.

The thing is, anode prices are the last to react.   Here’s the same chart from our Weekly Carbon Monitor for calcined coke.

CPC price rises are causing anode prices to also rise
CPC price rises are causing anode prices to also rise

The lower quality material, the blue line, has risen from RMB1200/t in November to over RMB1600 early February.  And that’s an 8-week moving average.  That’s a 33% increase in the space of 2 months.  It’s no wonder that aluminum companies and carbon companies inside and outside China are responding.

We are hearing multiple reports of panicked reactions and sudden changes in purchase order quantities.   Suppliers around the world are fielding enquiries from people looking for supply of calcined coke or anodes.

The question is, why?

Here’s the same chart from our Weekly Carbon Monitor for anode grade green coke.

Green coke prices are pushing CPC and anode prices
Green coke prices are pushing CPC and anode prices.

Green coke prices have risen by up to 25% on an 8-week moving average basis.  But green coke price is not the whole story, and the difference between the 25% rise in GPC price and 33% rise in CPC gives us a clue.

Calcining plants in China’s north and northeast are struggling to get approval to operate at full capacity.  Several small plants were closed through the last couple of months last year, and that shortage of capacity is now starting to hurt supply of CPC. That in turn is now hurting China’s anode producers.

It’s slightly counterintuitive.  The traditional narrative is that calcining capacity should never be a problem, and that supply of green coke is the most important factor.  But right now, anode grade green coke is available, especially now right after the Chinese New Year break.

This is not just a China problem.   China supplies roughly 20% of the rest of the world’s carbon for aluminum smelters.   Aluminum companies around the world are now marshaling the troops and increasing their watch on what is happening.  Some are also switching supply strategies.

After all, which purchasing manager anywhere in the world wants to be known as the guy who shut the smelter down because he failed to buy enough petcoke/ calcined coke/ anode supplies?

If you are interested in knowing more about our Weekly Carbon Monitor, please contact Stefi at steph@az-china.com, or complete the attached contact form.

 

 

Calcined coke quiz

AZ China is about to issue the latest edition of the Semester Pricing Handbook, our quarterly publication designed to support anyone negotiating petcoke or CPC contracts.   That includes buyers and sellers.

There has been a lot of close scrutiny on calcined coke prices, especially since last year when prices dived, and some buyers capitalized on a weak market.   So let’s have a little quiz about calcined coke and the market for this product.   See how many questions you can get right (there’s no prize other than the boost to your ego.)

  1. Which country paid a higher average price for calcined coke in Q3 2016?   Iran or Russia?
  2. Which country bought the most calcined coke from China in Q3?    UAE or India?
  3. Which country paid an average price of $214/t for their calcined coke?  Australia, Montenegro or South Africa?
  4. Which Chinese calcined coke supplier had the lowest average price for the quarter ($206)?  Weifang Lianxing or Jiangsu Yuan?
  5. Who shipped the most calcined coke in Q3?  Suyadi or ZCGG?  (Yes, it’s essentially the same company, but Customs data shows transactions for both entities.)

These questions come from the calcined coke section of the Semester Pricing Handbook, but there is an equal wealth of data in the petcoke sections.   For instance, what is the relationship between crude oil prices and petcoke prices?  Is China producing more or less anode grade petcoke now than 12 months ago?    How many of China’s oil refineries produce petcoke?

If you would like more information on the Semester Pricing Handbook, please contact us here at AZ China.   I will publish the correct answers for these questions in a few days.

 

Environmental inspections get serious

We have reported several times recently about the waves of environmental inspections that are taking place in China right now.   It has been clear to us that the authorities are ratcheting up the pressure, though it’s still not totally clear what the impact will be on the aluminum industry or on the raw materials industries that feed aluminum production.

But it is now patently clear that the environmental authorities mean business.   A Chinese language website has today published the first statistics from the latest wave of inspections.

According to the source, since the latest inspections started at the end of October, 100 people have suffered criminal detention.  More than 3000 people have been cited for breaches of air, water, noise or solid waste pollution.   And the fines issued during these inspections has exceed RMB 100 million – and that’s in only 8 of the 20 provinces being scrutinized.

There’s no data on exactly who the people are who went to prison, or their company names.  AZ China will continue to monitor the work of the environmental inspection teams, with particular focus on the carbon anode side of the business (which has already had substantial cutbacks).  But these numbers make one sit up and take notice!

Acknowledgements to the BBC for the feature image.

 

Still more on those environmental inspections

Even since our post a couple of days ago, the situation regarding the impact of the environmental inspections is becoming murkier.  The carbon side of the market is showing  signs of a sudden and seismic shift.

Subscribers to our Weekly Carbon Monitor will know that we called a steep rise in petcoke prices about 10 days ago.  Sinopec signaled the rise at the end of October, in response to a combination of a shortage of coke combined with some refineries going into maintenance.

This petcoke price rises are now starting to be reflected in CPC prices.   We will be providing details to our subscribers in the next Weekly Carbon Monitor, but our market sources are telling us that CPC prices are already on the rise.

The move in CPC prices is not just because of petcoke price rises.   The environmental inspections are having an impact, as some plants have been ordered to close.   A recent proclamation from the Ministry of environmental protection named 7 carbon plants that were required to close or reduce production.   Among those were Sunstone, a large supplier of anodes to the international aluminum community.

Our sources at Sunstone told us that they had indeed reduced some CPC production, but anode production was unharmed and unchanged.   The company was buying in CPC to replace the lost production.

At least 2 other major CPC suppliers have had to reduce output as a result of the environmental inspections.   From our conversations with these producers, it seems the area they are being picked up on is the de-dusting system.   Sulphur and other noxious emissions are not the problem, according to both our sources, but the impact of having to fix their de-dusting systems has meant a reduction in output for the next month or so.

Interestingly, one of our sources said that the environmental inspection team did not even visit their factory, but were relying on data collected at the local EPA office.   The factory had to close without even a visit from the inspection team.   A contact also told us that the inspection teams are armed with no special monitoring equipment.

There’s a lot of mis-information floating around, so AZ China is working diligently to seek the true story.   We have named Sunstone in this post because they confirmed that there will be no change in their anode output.   We will be compiling and comparing information about closures and cuts to output and will issue a special client briefing note to our subscribers.   If you are a subscriber and can’t wait for the briefing note, please feel free to write to me, and my team and I will bring you the latest.

If you are not a subscriber and you want to keep in touch with developments, you can also feel free to contact me and we can provide you with information on how to subscribe.