Analysis of the Current Situation and Prospects in the Chinese CWSF Market

Jun 17, 2010, 01:48 ET from Frost & Sullivan

SHANGHAI, June 17 /PRNewswire/ -- Since the 1970s, China's energy supply has been relying heavily on coal. However, due to the pollution caused by improper usage of energy resources and low efficiency of the coal processing, conversion, and combustion processes, the coal industry has created a series of environment problems, including contamination of underground water, land subsidence in mine areas, emissions of greenhouse gases (GHGs), diffusion of sodium peroxide, and so on.

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To overcome these challenges, coal water slurry fuel (CWSF), a product of clean coal technology (CCT), was introduced as an alternative for traditional coal burning. CCTs are a series of new technologies that aim at reducing the pollution resulting from the processing and use of coal and improving the efficiency of the coal processing, conversion, and combustion processes. CWSF is a mixture that contains 55-70 percent of coal particles, 30-45 percent of water, and less than 1 percent of additives. The customers have to equip a special boiler before CWSF is consumed. Once CWSF is fed into the special boiler and it undergoes the chemical reaction process in it, energy can be produced and released. This energy can be used in generating electricity, heating, support processing, and manufacturing. There are two outstanding characteristics of CWSF - cost advantage over fuel oil and environmental friendliness over coal. The cost per unit energy (1,000 kcal) produced using fuel oil is around RMB0.426, while it is only RMB0.211 for that produced using CWSF. This makes CWSF the best alternative to traditional primary energy resources such as fuel oil. When compared to coal, CWSF has higher burn-off rate as well as thermal efficiency, which reduces carbon discharge and increases the utilization of coal input. Moreover, CWSF can also contribute to environmental protection due to lower sulfur and soot contents than coal. CWSF emits 79.7 percent less sulfur dioxide and 49.3 percent less soot than coal to generate the same amount of energy.

The Chinese Government supports CWSF as a CCT product and encourages its development because it creates less pollution and has high utilization rate of energy. From 1981 to 2005, the promotion plan of CWSF was recorded in "Five-year Plans" in succession. During this period, a series of relevant technologies was developed in terms of CWSF production, storage, and transportation. In the 10th Five-year Plan (2001-2005), CWSF was recognized as one of the core energy technologies, and its development was supported by financial subsidies. Since 2006, local governments have also been issuing policies to encourage the usage of CWSF in local markets. For example, some provincial governments are making financial aid plans for boiler upgrade and CWSF usage.

The CWSF market in China has developed to the advanced level globally with a nearly thirty years' history. During the next 5-6 years, Frost & Sullivan expects the increasing demand for CWSF, stimulated by government support and the requirement to save energy and reduce emissions, is expected to promote the rapid development of the Chinese CWSF market further.

CWSF Supply Analysis

In-house production, domestic third-party sales, and imports are the three major modes of supply of CWSF in China.

In-house production refers to a business model in which companies produce CWSF for captive use, rather than sourcing it from local or international suppliers. This business model emerged when the Central Government began to support the R&D of CWSF. Currently, most in-house manufacturers in China are state-owned manufacturers of coal and/or electricity. They rely on their own coal resources and technologies to produce CWSF, aiming at thermal power generation. Enterprises that adopt this business model enjoy the advantages of low cost and stable supply. However, the disadvantage is that they have to invest a considerable amount of money (around RMB150 million for an annual capacity of 500 thousand MT) and time (2-3 years) in setting up the production lines. At the same time, professional technicians are required. As in-house production of CWSF is unlikely to be promoted, enterprises have limited knowledge about marketing CWSF and do not have sales channels or services.

Domestic third-party sales refer to a business model in which CWSF suppliers produce CWSF to sell to a customer instead of producing it for captive use. They target at CWSF customers who do not have in-house CWSF production capacity.

Customers benefit from this business model, as they do not have to introduce CWSF production lines, which can save both production costs and time. In addition, they can obtain the technical support from suppliers and learn to use CWSF products efficiently. However, the most significant disadvantage for third-party suppliers is the high delivery cost that has to be borne by them when they deliver CWSF to distant customers. Therefore, in order to overcome this constraint, domestic third-party suppliers tend to move closer to the customer base instead of mine areas. The advantages of CWSF are likely to be widely recognized with the development of CWSF technologies. Increasingly stricter environmental policies force enterprises that use briquette as an energy resource to resort to alternatives. Therefore, CWSF is forecast to be prominent because of its excellent energy efficiency and environmental friendliness. Enterprises that use fuel oil are also seeking alternatives because of the fluctuating fuel prices. CWSF gains their attention as well because of its favorable costs.

Some CWSF users located in coastal and border areas prefer to use CWSF that is imported from Indonesia, Australia, Mongolia, the Philippines, or other countries. These users neither have in-house capacity to produce CWSF nor find suitable domestic third-party suppliers in proximity. In terms of the technology used in producing CWSF, the quality of imported CWSF is not much better than that of domestic CWSF. Besides, coal is the most abundantly available resource in China, and the Chinese Government encourages the local supply of CCT products instead of importing them. The proportion of imported CWSF in overall supply base is likely to reduce gradually in the near future.

CWSF Demand Analysis

With the sustainable development of the Chinese economy, CWSF is expected to replace traditional burning coal and fuel oil to some extent and play a more important role in the development of the coal industry. There are three major downstream applications of CWSF in China - power generation plants, industrial customers, and residential heating.

Industries that currently use CWSF are metallurgy, papermaking, ceramics, chemicals, and textiles. The main function of CWSF in these industries is to provide them with heat and energy. It is used in these industries as it is more environmental friendly and economical than fuel oil and coal. It is also used because of the encouragement provided by the Government at all levels. Industrial customers are likely to become the most important segment for CWSF demand in China, taking the largest proportion among the three downstream applications in 2015. Meanwhile, its growth rate is the highest from 2010 to 2015.

In northwest and northeast China, residential heating applications use CWSF. China's urbanization rate increased from 43.9 percent in 2006 to 46.6 percent in 2009. This trend is expected to continue from 2010 to 2015. This, coupled with the significant improvement of the living standards of the residents of China, has created a significant potential for the growth of the residential heating segment. The area with residential heating in China is likely to be expanded in the near future in order to protect the residents during cold seasons. Thus, CWSF is forecast to replace coal to satisfy the needs of residential heating in a more environmental-friendly and economical manner. This market segment is expected to progress within five years.

The practice of using CWSF, instead of coal, to generate thermal power is gaining popularity in China. CWSF is a more environment-friendly and economical alternative comparing with coal. Therefore, this market segment is likely to witness sustainable growth from 2010 to 2015 in China.

CWSF supplied by domestic third-party suppliers is likely to be preferred more, especially by light industries and residential heating applications, than the CWSF that is produced in-house and imported. The overall CWSF market growth and dependence on domestic third-party suppliers creates significant growth opportunities for such suppliers.

Potential Challenges in the Chinese CWSF Market

Despite the increase in demand and support from the Government, the Chinese CWSF market is also likely to encounter some challenges in the future. For example, the storage period for CWSF is limited, which normally ranges from six months to one year. Transportation costs are also high because water accounts for 35-40 percent of CWSF's composition. If pipelines are used, congestion is likely to occur in long-distance transportation. In addition, CWSF is flammable, which results in a number of security issues during its transportation. CWSF also requires special boilers, and the construction of a new CWSF boiler needs an investment of RMB1-5 million. This is 15-20 percent higher than that for a traditional coal boiler. When a customer upgrades the coal boiler to a CWSF boiler, certain amount of money is also required. In terms of cost, CWSF prices are affected by coal price fluctuations as well, as coal is the key raw material.

Leading Companies in the Chinese CWSF Market

  • Sino Clean Energy Inc. (SCEI)

SCEI was founded in May 2002, and its paid-in capital was RMB70 million. It commenced to sell CWSF products in 2005. Located in Xi'an, Shaanxi Province, its CWSF products were initially produced for heating systems in Tongchuan, Shanxi. In the future, it plans to produce these products for the residential heating systems in northwest China and light industries in south China. Successful capital operation has helped the company to achieve rapid growth. After seven years of development, the company became the largest domestic third-party supplier of CWSF products in northwest China in terms of sales volume in the first three quarters of 2009. According to SCEI's financial results, its revenues increased from USD14.3 million in 2008 to USD46.0 million in 2009. In Q1 2010, it generated revenues of USD24.5 million.

  • Datong Huihai Coal Water Mixture Co., Ltd. (Datong Huihai)

Datong Huihai was founded in 2000, and it is located in Datong, Shanxi Province. The company focuses its business on CWSF products. It mostly transports its products through train and cargo ship.  Datong Huihai caters to customers in Beijing, Tianjin, Hebei, Liaoning, and Guangdong. The company also cooperates with the University of Science and Technology of China and Nanjing University to develop the technology of CWSF as a substitute for fuel oil and CWSF products. Hengyuan Huihai Group, its parent company, is one of the largest enterprises in Datong. The company focuses on coal mining and washing, coal distribution, and CWSF production and sales.

  • Dongguan Power Fuel Co., Ltd. (Project Name: Dongguan Shenhua Environmental Protection CWSF Project)

The project was initiated in 2006, and its plant is located in Dongguan, Guangdong Province. It is funded by Dongguan Power Fuel Co., Ltd., and it receives a stable supply of raw materials and technical support from the National Engineering Research Center for CWSF. Dongguan Power Fuel Co., Ltd., the investor, was founded in October 1988 and is engaged in refined oil, fuel oil, and coal storage, transportation, and sales. The company sells its products in China in addition to exporting them to Europe, North America, Latin America, Japan, the Middle East, Australia, Taiwan, Hong Kong, and other countries and regions.

  • Gansu LvTianYuan Coal Water Mixture Co., Ltd. (Gansu LvTianYuan)

Gansu LvTianYuan was founded in 2006, and it is located in Lanzhou, Gansu Province. It is a state-owned enterprise (SOE) and is supported by the Chinese Ministry of Environmental Protection. The company's main business includes the production of CWSF products and related equipment. It has a strategic advantage in terms of location because it is located in Gaolan, Gansu, which is only 13 km far from the urban area of Lanzhou City. Hence, its CWSF products can be easily transported. The company largely supplies to heating systems in Lanzhou City.

  • Shandong Yanri Coal Water Mixture Co., Ltd. (Shandong Yanri)

Founded in 1990, Shandong Yanri is located in Yanri, Shandong Province. Nissho Iwai Corporation and JGC Corporation are its investors, and Yankuang Group Co., Ltd. controls it. The company is engaged in the production of CWSF and sells it to the overseas market. As it is located close to Rizhao Harbor and railway facilities, it is able to transport raw materials or export products more efficiently. The main processing equipment and technologies are introduced from Japan. Yanzhou Mining Co., Ltd., its parent company, owns the National CWSF Gasification Engineering Research Center.

Contact:

Riona Jin  

+86-21-54075783-8652

riona.jin@frost.com



SOURCE Frost & Sullivan



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