China battery producers test higher sulphur coke

Chinese demand for medium sulphur anode-grade petroleum coke may increase in the coming years as battery manufacturers — regular consumers of ultra-low sulphur sponge and needle coke — aim to relax specifications to meet growing cost-cutting pressure.

Some battery producers are now undertaking trials of 1.5-3.5pc sulphur sponge grade green coke sourced from domestic producers as well as refineries in Russia and the Middle East.

Battery producers need to find a larger source of raw material supply for the synthetic graphite that goes into a lithium-ion battery's carbon anode as demand grows exponentially. While some new needle coke capacity is coming on line, planned supply growth is far outweighed by forecasts of demand growth.

But while needle coke supply is limited globally, there is greater availability of low-to-medium sulphur petroleum coke with a sponge morphology that is typically used for aluminium anodes. This sponge coke is significantly less expensive than needle coke, even as its price remains close to record highs, encouraging producers to incorporate more of it into their blends. Prices of sponge grade green coke with less than 1pc sulphur peaked at a little over $1,000/t in the Chinese domestic market in the second quarter of this year and have since come down to the mid-$800s-mid-$900s/t. In contrast, needle coke prices typically range from $1,500-$3,000/t. But 0.8pc sulphur green coke was sold at less than $200/t as recently as mid-2020, illustrating the huge jump in anode-grade demand over the past two years. The steep increase has made coke cost reductions a key issue for battery manufacturers, especially as they look to scale up synthetic graphite production.

Chinese producers are likely better able to relax coke sulphur specifications because they are producing lower-density lithium-ion batteries, delegates heard at the Argus Americas Petroleum Coke Summit in Seattle, Washington, earlier this month. While major lithium-ion battery producers outside of China, namely Japan's Panasonic and South Korea's LG, mainly focus on nickel-cobalt-aluminium oxide (NCA) and nickel-cobalt-manganese oxide (NCM) battery chemistries, major Chinese battery producers such as CATL and BYD focus on lithium-iron-phosphate (LFP) batteries. The latter is a lower density battery that operates at a lower temperature than NCA and NCM batteries, which helps reduce the chance of swelling that can result in fire or other safety hazards. Chinese battery producers are finding that at these lower temperatures, the high-quality needle and 0.8pc sulphur sponge cokes are not as necessary. And by reducing their use of these high-cost feedstocks, battery producers can drastically reduce costs and meet the cost-reduction demands of downstream companies like Tesla.

Growing demand from China's synthetic graphite producers for cokes that were once staples of the aluminium raw material supply chain could result in further cost increases for aluminium smelters. But smelters have little room to pay more for carbon anodes as their electricity costs have increased about threefold. With the exception of some vertically integrated producers such as Hongqiao Group that own power plants, most Chinese smelters are operating roughly at a breakeven point, with the sluggish Chinese economy depressing aluminium prices. Cuts to aluminium smelting on power rationing are further reducing demand for anodes and calcined coke. This is squeezing margins for calciners and carbon anode producers, as prices for green coke and coal tar pitch are rising more quickly than for these products.

But coke demand from aluminium producers could increase as China is likely to soon announce a stimulus package focused on the real estate market — a significant consumer of aluminium and steel construction products. A simultaneous recovery of China's construction industry alongside higher anode-grade sponge coke consumption by battery manufacturers would likely lead to further price increases and an even tighter supply of anode-grade coke.

By Alexander Makhlay and Lauren Masterson