CBIChina

Imported high-sulfur petroleum coke was in favor in Chinese market these months, thanks to their lower prices compared with homemade resources, C1’s survey found. Prices for domestic petroleum coke have been rising sharply since this March, especially after Sinopec hiked its ex-refinery prices. Enlarging price spread with international market lured more imports into domestic market. Statistics showed that imports in March-May jumped up 48.67% year on year. C1 believed that imports would likely continue to boom in the latter half of this year if the spread keeps high. Low impact on domestic petroleum coke market is anticipated in the near term, however, since imports still occupy a relatively low share in apparent consumption by far.

Domestic high-sulfur petcoke price spirals up

Prices of petcoke in domestic market have been trotting up ever since Mar 14, when Sinopec - which took 56.8% of share in domestic output in 2007 - ordered subsidiary plants to hike ex-refinery prices. The trading level of high-sulfur grade on ex-refinery basis, for instance, has jumped up 38.65% compared with this Mar 14 to Yuan 2,174/mt on Jul 9. The giant notified its underlying refineries on Jul 2 to boost the prices by another Yuan 50-100/mt in July. That will certainly buoy up domestic market level, industry sources forecasted.

The uptrend was more likely triggered by contrived price-hike of refineries than market demand, industry sources said. Both PetroChina and Sinopec raised prices of minor products like petcoke in a bid to relent refining losses resulted from distillate sales, the sources explained. Domestic gasoil and gasoline retail prices were under strict control of the central government, and remained untouched despite skyrocketing crude cost. The government left distillates retail benchmarks intact in almost entire first half-year, but front-month WTI contract surged 28.8% during March to Jun 19, the day before the government’s hike in the retail reference prices.

Imports more profitable for traders

In contrast to surging domestic prices, the prices in the international market were seen laggard. Take high-sulfur fuel-grade petcoke, the category that accounted for 60.26% of total imports in 2007, for example. The prices of the grade with sulfur content above 3% averaged US$192.25/mt on CIF China basis in June, a 10.03% rise from US$174.71/mt in March. Meanwhile, the ex-refinery deal done price for domestic grades jumped up 29.38%.

For traders, therefore, purchase cost for imported cargoes was much lower than that for domestic grades. C1’s record showed that, at the end of June, the cost for imports, after a 10.82% rise compared with March, were at Yuan 1,793/mt, with import tariff of 3% and value add tax of 17%, port fees and exchange rates taken into consideration. However, the ex-refinery price for high-sulfur fuel-grade petcoke was at as high as Yuan 2,150/mt, which increased by 34.38% during the period. The cost for sourcing domestic grades was even higher than the trading level of imported resources. Foreign grades were traded at Yuan 1,950/mt on ex-terminal basis in June on average.

Imports to remain bullish in H2 this year

Traders scrambled for foreign materials in view of lower purchase cost. Imports leaped up by 48.67% in the March-May period compared with one year earlier. In fact, the robust uptrend in import volume started since the second half of 2007, which saw 84% of rise relative to the same period of 2006. The trend is expected to continue in the second half of this year, since domestic demand for high sulfur grades is seen getting stronger. C1 anticipated at least 60% year-on-year growth in petcoke imports in the latter half of the year.

Domestic end-users showed stronger appetite for high sulfur grades this year. They shifted to cheaper high-sulfur petcoke, in view of rocketing prices for other grades. To cut cost, they hiked buying of high-sulfur grades and blended them with middle and low sulfur grades. The users in aluminum industry have been increasing consumption of high-sulfur petcoke for production of electrodes since 2007. In southwestern region, sulfur content of petcoke was strictly controlled at below 3%. But since early this year, some companies have started to use those grades with 3-5% of sulfur content. With more high-sulfur grades applied in domestic smelting and carbon industry, China’s demand for the products is expected to inch up at least 10 percentage points in the next few months of the year compared with one year before, C1 believed.

Other industries like cement and glass manufacturing would likely also switch to high-sulfur petcoke as substitutes for coal and other fuels, in view of soaring prices of the latter, industry sources said. That may boost the consumption by another 10 percentage points in the second half, C1 predicted. Imports would increase along with stronger consumption, since China traditionally records low outputs of high-sulfur fuel-grade petcoke. A majority of its petcoke output are metallurgical coke.

Low impact on domestic market expected in near term

Despite anticipated healthy rises, inflows of foreign cargoes would not sway domestic market in the near term, C1 believed. Currently, the country still depends on domestic production and imports merely occupy a low proportion in apparent consumption. Percentage of imports in apparent consumption was merely 7.11% in first five months of 2008, and 7.89% in 2007, data from National Bureau of Statistics showed. Even if imports jumped up by 60% in the second half-year, its ratio in apparent consumption would unlikely to be boosted sharply, given its weak base data.

On the other hand, imports into China are normally high-sulfur fuel-grade petcoke, not the major grades consumed by Chinese end-users right now. In China, a large quantity of the consumption is contributed by metallurgical coke with low or medium sulfur content.

What’s more, even if China’s appetite for high-sulfur grades bulged up significantly, the availability of such grades in international spot market will be relatively low in the second half of the year, industry sources said. Most overseas producers have signed term contract for at least one year, and they have limited extras for spot supply. For instance, the US – one of the key exporters to China - produces around 70-mil mt of petcoke annually. More than 50-mil mt is for contract buyers, leaving merely around 10-mil mt for spot sales.

We cannot rule out the possibility of last impact from overseas inflows in the long run, however, the industry sources furthered. The foreign producers may dump their resources into Chinese market, if exports remain profitable over wide spread, and if more Chinese end-users shift to high-sulfur grades. Besides, the production of petcoke in Europe and US would also increase amid their expanding coking capacities, and the refineries would surely find new outlets for their products – China would be one of the choices, the sources said.

China, net exporter of petroleum coke by far

China has been a net petcoke exporter, with growth in exports exceeding imports in recent years. In 2007, China’s petcoke apparent consumption reached 12.90-mil mt, with exports at 1.59-mil mt, imports at 0.78-mil mt and output at 9.927-mil mt. Materials for exports are mainly superior grades with low sulfur, low ash and low metal content, which are mostly controlled by oil majors like PetroChina and Sinopec. Exports are mostly destined to markets like the US, Russia, Australia and Middle East. Imported cargoes are primarily high-sulfur grades from the US, Taiwan, Southeast Asia and Middle East.

In China, annual demand for low-sulfur grades is around 8-mil mt while that for high-sulfur grades are circa 4.5-mil mt. Downstream consumers are mainly in smelting industry, with 60% from electrolytic aluminum industry, 10% from steal, 10% from silicon.