China seeks to curb high-sulphur fuel coke

A new Chinese government decarbonisation action plan seeks to ban the use of high-sulphur fuel-grade coke, which could further cut the country's seaborne imports and sink demand for domestic and stockpiled high-sulphur coke.

The country's State Council on 29 May issued an action plan for energy conservation and carbon reductions for 2024-25. The plan prohibits using high-sulphur petroleum coke as fuel, except in petrochemical enterprises' own existing generation units, as part of a broader plan to cut fossil energy consumption. China generally considers any coke with more than 3pc sulphur to be high sulphur.

The plan aims to cut China's energy consumption per unit of gross domestic product (GDP) by about 2.5pc and CO2 emissions per unit of GDP by 3.9pc this year, with large cuts to coal consumption. The document states that 39pc of total power generation should come from non-fossil fuels by the end of 2025. Ferrous and non-ferrous metals are set to be affected. Coke production could be hit as well, as the plan includes scrapping smaller crude distillation units and capping domestic crude processing capacity to within 1bn t/yr (20mn b/d) by the end of 2025.

China has since March 2021 been committed to a "dual carbon" goal of achieving peak carbon emissions by 2030 and carbon neutrality by 2060. But environmental goals took a backseat during the difficult economic years of the Covid-19 pandemic, as authorities were more concerned about GDP growth.

The end of China's high-sulphur fuel coke market?

While the plan clearly prohibits most high-sulphur fuel coke consumption, it is unclear what enforcement mechanisms will be put into place.

China in 2015 passed a law banning high-sulphur coke imports, but after a brief period of market disruption, high-sulphur imports resumed as normal. China imported nearly 12mn t of greater than 3pc sulphur coke in 2023, according to Global Trade Tracker (GTT) data. This has some coke market participants wondering if the latest plan will actually be as disruptive as it appears.

Power plants that consume high-sulphur fuel grade coke have yet to receive any formal notice, one trader said, adding that the government will require more time to sort out the roadmap for the country's high-sulphur coke exit. Another trader said that the language is vague and up for interpretation.

But the first source did not think the announcement should be set aside, contending that this time the Chinese government is serious.

If enforced strictly, the plan could have a significant impact on China's domestic and imported high-sulphur fuel-grade coke. Some power plants in southern China purchase high-sulphur coke to blend with thermal coal to keep fuel costs low. Cement makers and glass manufacturers can sometimes also use this coke, even occasionally Saudi Arabian 8.5pc-9pc sulphur coke.

In April, large amounts of high-sulphur shot coke were stockpiled at ports in south China's Guangxi region, mainly Saudi Arabian and Venezuelan coke. Much of this is likely still in stocks, as it was previously purchased at high levels, while low coal prices have kept coke from being particularly competitive as a fuel. This weak market for high-sulphur fuel coke has kept seaborne imports lower so far in 2024 — year-to-date through April, greater-than-3pc sulphur coke imports are down by 37pc from January-April 2023 at 3.5mn t. Imports from Venezuela are down by 71pc on the year to 404,400t, while high-sulphur coke imports from the US, China's largest supplier, are down by 78pc to 483,400t.

On the other hand, high-sulphur imports from Russia are up by 22pc to 884,300t and 8.5pc sulphur Saudi imports doubled to 762,400t over the same period.

At least some portion of these imports are going into the anode-grade coke market, where it is used as a feedstock rather than a fuel. Calciners can use up to 8.5pc sulphur coke as long as it is sponge grade and its metals are not too high. Countries like Kuwait and Oman typically supply higher-sulphur anode-grade coke, and others like the US and Canada have a mixture of anode-grade and fuel-grade quality with more than 3pc sulphur. This makes it difficult to break down exactly how much of China's greater-than-3pc sulphur imports are currently being burned as fuel, but it is likely the majority of the high-sulphur US, Saudi Arabian and Venezuelan supplies are being used this way.

This leaves open the question of what will happen to these millions of tonnes of high-sulphur fuel-grade coke if they can no longer be consumed in China. Some Chinese refineries also produce high-sulphur coke and do not necessarily have the capability to consume it all internally.

Although India is also a large consumer of high-sulphur fuel grade coke, it could have difficulty absorbing all of the supply that could be stranded by a Chinese exit. India's cement makers imported only 8.2mn t of high-sulphur fuel-grade coke in 2023, less than 70pc of China's total. Indian buyers also do not typically attach much value to sulphur content, preferring 6.5pc and 8.5pc sulphur coke and not paying a premium for 3-6pc sulphur cokes.

While the full long-term impact of the policy remains unknown, the uncertainty it has sparked will have a chilling effect on China's high-sulphur coke demand, market participants said.

"Until there is further clarification, none of the Chinese traders will look at petcoke," a third source said.

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