China policy doubt may weigh on high-sulphur coke

The Chinese government's decision late last month to ban high-sulphur petroleum coke consumption is likely to put some downward pressure on the market, which has been balanced for most of the first half. But a lack of clear enforcement measures could limit the impact on prices. An already weak market for high-sulphur coke in China could also blunt the policy's effect on seaborne coke.

While China's State Council's broad pronouncement on 29 May sounds major, it echoes previous moves by the country to limit high-sulphur coke. The market has continued to grow despite such efforts.

When China first passed an air pollution law in the second half of 2015 banning the use of "unqualified" coke, or coke with more than 3pc sulphur, high-sulphur prices were already falling. The news propelled the fob US Gulf coast and cfr China and India 6.5pc sulphur prices into a further tailspin. The fob US Gulf price shed $19.50/t between 2 September and 4 November 2015, nearly half of its value, while the cfr China 6.5pc lost about a quarter of its value, dropping by $16/t. But prices soon began to level off, in part because of the lack of any official announcement on banned coke qualities. The country's high-sulphur coke imports shrunk to 109,000t in January 2016, down from 474,100t in September 2015. But by February, imports began rising again, as no enforcement materialised. By May 2016, greater-than-3pc sulphur imports reached 459,100t.

The Chinese government continued to make attempts at restricting fuel-coke consumption in the following years, including limiting construction of coke-fired power plants in late 2016, banning high-sulphur coke use in industrial furnaces in 2018 and banning high-sulphur coke in key regions around major cities and in glassmaking nationwide in mid-2019. Customs officers in Shandong province also blocked some high-sulphur cargoes as "solid waste" in 2019. But policies have tended to be vague with limited or uneven enforcement, resulting in a patchwork of different regional standards. China's greater-than-3pc sulphur green coke imports continued to reach new highs, peaking at over 1.5mn t in April 2023.

Imports have mostly fallen since the middle of last year, although high-sulphur coke volumes were surprisingly high in April of this year, at 1.18mn t, the most since April 2023. This was largely because of a jump in Russian deliveries to record highs, at 342,700t, although US higher-sulphur imports also rose sharply from March.

US exports to China also jumped in March to 718,000t, their highest since October 2022, with a large amount of this coming from US Gulf ports that typically supply high-sulphur. New Orleans, Louisiana, shipped 332,100t; Houston-Galveston, Texas, 109,300t; and Port Arthur, Texas, 52,000t. An additional 36,800t was shipped from Philadelphia, Pennsylvania. The remainder came from the US west coast and likely consisted of some less-than-3pc sulphur coke. By April, Gulf shipments had largely tapered off, with only 115,500t coming from New Orleans and 48,600t from Port Arthur.

Exports to China made up 9pc of US Gulf coast coke shipments in the first four months, a slightly higher market share than in full-year 2023, at 7pc. But it was below the 12-13pc shipped to China in 2021 and 2022.

Although China's market share has declined, a true ban removing almost 10pc of US Gulf high-sulphur coke demand would be significant. But prices have yet change much in China following the new policy announcement, with one trader saying there has been no obvious drop in prices for now while market participants are still evaluating the policy. The changes are set to be implemented by 60pc this year, reaching 100pc by the end of 2025, the person said.

But although previous policies have not been effective at cutting China's high-sulphur coke demand, some participants think that this time there could be a stronger central government push to enforce the standards, leading to a long-term drag on the demand outlook for imported high-sulphur coke.

By Lauren Masterson

6.5% sulphur fuel-grade coke prices $/t

US Gulf green coke exports ’000t

China >3pc sulphur green coke imports ’000t