Coke producers turn to chemicals amid oversupply, dwindling profits
Shanghai. November 10. INTERFAX-CHINA - A growing number of China's coke producers are turning to the chemical by-products of the coking process to boost profits amid worsening oversupply problems in the sector, an industry analyst told Interfax on Nov. 10.
Coke producers are currently seeing losses of between RMB 200 ($31.58) to RMB 300 ($47.37) per ton, while the by-products of the coking process, such as tar, coke oven gas and methanol, are relatively valuable, Umetal coal analyst Mu Wenxin told Interfax.
Major players that have begun to expand into this area include Shanghai Coking Chemical Corp., Risun Coke Group Corp. and Shenhua Wuhai Energy Co. Ltd.
China's coke industry has increasingly suffered from oversupply in recent years. Official figures show national coke output stood at 380 million tons last year, while consumption was only about 354 million tons, according to Interfax calculations. Exports were just 3.35 million tons.
The problem is set to worsen during the 12th Five-Year Plan period (2011-2015), with annual output expected to reach 600 million tons by 2015 based on current growth rates, against consumption of only about 530 million tons, according to Mu.
Coke producers moreover face increasing pressure from the coking units of coal miners and steelmakers, as well as government efforts to consolidate the sector.
"Most major steelmakers buy coking coal from miners directly, and only a few privately-owned small-scale steelmakers are supplied by coke firms," said Li Tao, a representative of Longmay Mining Group Co. Ltd. (Longmay).
Coking firms are on the back foot in current negotiations with steelmakers over long-term supply contracts for 2012, which are unlikely to achieve a significant increase on this year's prices, according to Li.
China's upcoming five-year plan for the coal industry, an industry-specific supplement to the 12th Five-year Plan, will have a strong focus on industry consolidation, further increasing difficulties for small producers.
The country's largest coke producing region, Shanxi Province, released a five-year plan for its coal industry today that aims to cut the province's 270 coke producers down to 150 at the end of this year, further shaving the number to 60 by 2015.
Meanwhile, the province aims to create five leading players with annual capacity of 10 million tons and above, as well as 10 firms with capacity exceeding one million tons, said Mu.
Shandong Province, another major producer, has merged 45 firms with combined capacity of more than 30 million tons to create the world's largest coal distillation group, Shandong Coking Enterprise Group (????????), said the analyst.
China's coke output is set to reach 410 million tons this year, according to the China Coking Industry Association (CCIA).
- KHM