Carbon & Chemicals: The Year in Review for Graphite, Salt and Activated Carbon

LONDON, December 15, 2016 /PRNewswire/ --

Carbon and chemicals experienced a complicated year in 2016. Overarching trends included debt reduction by the major public mining companies, adjustment to China's slowing economy, and market reactions to the growing public sentiment against 'business as usual' - the European referendum vote and the presidential election in the USA. The end of the year saw a paradigm shift in how major governments view trade. Globalisation is being usurped by protectionism.

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Prices for many commodities were at several-year lows as 2016 began. But by the middle of the year, commentators and companies alike were calling the bottom of the market, and prices improved.

Moving into 2017, stability appears to be the key aim of the major producers. For carbon and chemical commodities, the outlook for 2017 is positive. Graphite looks set to capitalise on the anticipated lithium-ion batteries boom. Activated carbon markets are being boosted by environmental legislation. Salt trade is being facilitated by low shipping rates.

Natural & synthetic graphite 

The graphite industry is poised for growth in 2017 with robust demand growth forecast from lithium-ion battery anodes and increasing competition between natural and synthetic graphite in this application.

Yet the sector in 2016 was fairly subdued. Natural graphite prices continued to fall through the first half to reach a nine-year low in June. A very small uptick of 1% was reported for the highest grades in July, followed by a return to stable pricing for the remainder of the year. Most synthetic prices remain curtailed by low electrode demand.

Consumption remained sluggish for refractories and electrodes, the largest consuming applications for natural and synthetic graphite respectively. Ultimately driven by steel production, these applications performed poorly with depressed steel output in Europe and North America. While there have been concerns about the Chinese economy slowing down, domestic crude steel output continued to ramp up throughout the year although this was not enough to stimulate the refractories sector.

China continued to consolidate its natural flake graphite industry in an attempt to bring production further under state control and to eliminate environmental concerns. Major anode manufacturers, such as Shenzhen BTR New Energy Material, increased control over flake resources. Ongoing encouragement of downstream production resulted in increased export of processed spherical graphite in 2016, while exports of natural flake graphite remained static.

Meanwhile, ROW producers ground to a halt with closures persisting for recently-opened natural graphite projects in Sweden (Leading Edge Materials) and Australia (Valence Industries, which voluntarily entered administration in July).

Producers continue to look to the batteries sectors in an attempt to forecast future trends in graphite. Automotive manufacturers targeting extensive battery consumption - such as Tesla, BYD and Volkswagen - have yet to commit to potential sources for their graphite. Questions remain over whether they will choose natural or synthetic graphite, and if it will be sourced from China or ROW suppliers. Tesla officially opened its 'gigafactory' in July following claims that it could triple planned battery output to 150GWh if needed in future.

A number of natural graphite hopefuls claim to have graphite of the correct quality and price for supply to the battery industry. Syrah Resources progressed with its large Balama project in Mozambique, reporting an offtake agreement with Marubeni and an increase to reserve estimates.

China still dominates the supply chain: from flake graphite mining, spherical graphite processing and synthetic graphite production, through to production of anodes and final battery manufacture. A consortium of ROW graphite producers and companies with development projects joined together in early 2016 in the hope of establishing a spherical graphite supply chain outside of China, acquiring a micronising and spheronising mill in the USA.

Salt 

The global salt market in 2016 was facilitated by historically-low shipping rates. Transporting salt and other bulk commodities over long distances has become increasingly viable and new, long-distance routes opened up throughout the year. This led to an inter-regional salt market.

Countries in Asia have historically relied on imports of high-grade, low-cost solar salt from Australia for use in the domestic chemicals industry. The last 12 months saw Australia remain as the world's largest salt exporter, shipping an estimated 9.2Mt, accounting for 17% of the global total (Australia does not disclose export figures, so those quoted represent reported imports from trade partners).

Exports were, however, down 19% y-on-y, which can in part be explained by reduced demand following cutbacks in Asian chloralkali and synthetic soda ash capacity in 2015/16, but also added competition from low-cost Indian solar salt, which put downward pressure on salt prices. Exports of solar salt from India destined for the Chinese chemical market proved significant in 2016, totalling an estimated 3Mt of salt to China, up 28% y-on-y.

In October, the global salt industry was boosted by the Chinese government's announcement that it would be liberalising the domestic salt market, ending its administrative price controls. Wholesale and retail salt prices will be determined from 1 January 2017 by operating costs, salt grades and the performance of the salt market. The move marks the end of over 2,000 years of Chinese state monopoly, providing opportunities for Chinese salt suppliers as well as suppliers from the rest of the world.  

Earlier in the year, the world's largest salt producer K+S Group announced that it was developing its 3.5Mtpy high-purity solar salt Ashburton project in Australia. With the Chinese chloralkali industry forecast to grow ~5%py to 2025, much of this increased demand will be met by Indian solar salt, but also by exports from Australia. Such an opportunity is resulting in producers positioning themselves to supply this increased demand.

The USA remained the largest importer of salt, with demand being driven by de-icing applications. Shipments are estimated to have been 12.5Mt in 2016, which is down some 40% y-on-y. The drop can be attributed to lower demand for de-icing, following milder weather in Q1 2016.

Activated carbon 

Activated carbon markets were reinvigorated in April 2016, following the US Court of Appeal's decision to keep the Mercury and Air Toxics Standards (MATS) regulation in place. Roskill estimates that once all coal-fired utilities are in compliance with MATS, the US industry will consume approximately 150,000tpy activated carbon to reduce mercury emissions. Powdered activated carbon systems are one of the dominant technologies in the control of mercury emissions from coal-fired power plant flue gas.

Nearly 40% of the electricity generated in the USA comes from burning coal. In China, more than 80% of electricity generation is from coal-fired power stations. If China enacts similar legislation to the US EPA MATS rule, the potential world demand for activated carbon in flue gas treatment systems could double to 300,000tpy of powdered activated carbon. China was one of the 140 countries that signed the Minamata Convention on mercury on 19 January 2013 and it went on to ratify the treaty on 31 August 2016. By late September 2016, 140 countries had signed the treaty and 32 had also ratified it. The Convention will enter into force 90 days after it has been ratified by 50 countries.

In the municipal drinking water market, an important driver of activated carbon use in 2016 was the reduction of Disinfection By-Products Rule in the USA. Water treatment in industrialising countries represents a larger long-term potential market.

Activated carbon is expected to enjoy further market growth to 2025 and expansion in world production capacity to meet this growth is underway, led by China and the USA but at least four other countries have increased their capacities.

Cabot Purification Solutions remained the leading producer of activated carbon in 2016. Since the acquisition of Jacobi Carbons of Sweden from Addsorb Holding in June 2014, Osaka Gas Chemicals of Japan has moved up into second place. A relatively recent entrant to the market, Datong Coal Jinding Activated Carbon, is already the largest activated carbon producer in Asia and the third largest producer of activated carbon in the world.

Calgon Carbon, the leading producer of granular activated carbon and the largest regenerator of spent activated carbon worldwide, increased its regeneration capacity with the acquisition of Ceca in November 2016. Calgon Carbon has a granular activated carbon capacity of more than 123,000tpy and net capacity is scheduled to increase further by end-2017.

Activated carbon production is based largely on coal, coconut shells and wood charcoal, and raw materials availability can be an issue. Activated carbon is a by-product. Coal (or coconut, or wood) producers do not make production decisions based on the market for activated carbon.

International trade increased in 2016 while prices fell from the peaks experienced in anticipation of the MATS rule and then recovered when the regulation stayed in place. Monthly prices continued to increase in North America, in contrast to trends seen in Chinese and south-east Asian prices. The average value of shipments from the USA increased from US$2,967/t in 2012 to US$4,200/t in 2016. This upward trend is supported by a range of factors and partly reflects higher shipments of speciality activated carbons produced for specific applications. Roskill expects that US prices for speciality grades will continue to increase into 2017.

SOURCE Roskill Information Services