Petcoke - no news is not good news

The first week of the new year has brought with it no new hard information on China’s standing with petroleum coke. In the absence of hard news, soft news still seems to indicate where we are heading.

China introduced a new law about 4 months ago banning the sale or burning of “unqualified” petcoke. It did not define what constituted an unqualified petcoke, instead relying on a new National Standard. But no such Standard exists, and we understand such a Standard will not be available for possibly 12 months. In the interim, Sinopec’s Petroleum Coke Classification Table remains the de facto standard - an industry standard until the National Standard is available.

Sinopec first submitted a revision to its Classification Table about 12 months ago, and we understand the revised table was approved in November. But it has not been released yet.

Meantime, the market was flush with rumours in December that a new announcement would set the bar for “unqualified” petcoke at 3%. But no such announcement came.

This lack of direction has not stopped the market from preparing for the changes. One Sinopec refinery whose crude slate has shifted to a more sour blend is now offering its petcoke into the international market. That would be a strange move, unless it expects that its petcoke will be banned from sale inside China. Calcining companies are dealing with the tighter regulations on sulphur by installing scrubbers. And we understand Chalco is now looking to set up a tolling operation with local calciners - the point being that Chalco’s own calcining/anode plants are not equipped with scrubbing technology. It’s cheaper and easier to switch to tolling their petcoke purchases.

The market is slowly adjusting to the new environment, even before the new rules have been announced, though at this stage we still have not seen a wholesale switch to low sulphur petcoke by China’s aluminium industry. That’s the switch that if it happens will make all the difference, as we have discussed many times before.

But why has there been no announcement as yet? One theory is that negotiations are still under way. The company at the centre of all the changes in the market place is Sinopec. Sinopec stands to gain from a ban on imported high sulphur petcoke, but lose if it is penalised for its production of the same material. Sinopec is one of the world’s largest companies, and is a major source of revenue for Beijing. It is also presently gaining profit thanks to Beijing keeping gasoline prices stable despite crude oil prices falling. But Sinopec suffered hugely in previous years when oil got up into the $150/barrel range.

Petcoke is not a major revenue ticket for Sinopec compared to its other revenue streams, but the total market is still about 25 million tonnes, of which Sinopec is the largest player. We understand Sinopec has at least known about and may have been involved in the drafting of the new law.

In a situation where economic indicators are pointing south, and manufacturing generally is suffering, could it be that Sinopec is seeking to ensure that its interests are best served by any new regimen that the government might want to bring down? Sinopec will not want to publish its own Classification Table as the new de facto standard if it means it is in breach of that standard. And given that imports of high sulphur petcoke are falling away, the market is making the adjustments without any official announcement.