1. Due to constraints on raw material supply, the capacity utilization rate of petroleum coke remains low.

1.1 Petroleum coke production is steadily increasing, but future supply may face downside risks.

Petroleum coke is a byproduct of petroleum refining. With the development of China's petroleum refining industry, its production has steadily increased—from 11.88 million tons in 2009 to 30.30 million tons in 2021, with an average annual growth rate of 8.1%.

The future supply of petroleum coke does not look promising. On the one hand, with the rise of electric vehicles, China’s new-energy vehicle market is experiencing rapid growth, gradually squeezing out petroleum consumption. As a result, traditional oil companies are cutting back on capital expenditures, and the slowing growth rate of oil production could constrain the supply of petroleum coke. On the other hand, due to the implementation of the “dual-carbon” policy aimed at reducing carbon emission intensity, some refining and chemical enterprises have delayed the construction of coking units in new projects and switched instead to hydroprocessing units, which also affects the supply of petroleum coke.

The capacity utilization rate of petroleum coke is low but has been gradually recovering. Petroleum coke is a byproduct of oil refining and processing; it does not inherently have a concept of production capacity. The output of petroleum coke largely depends on the volume of crude oil processed in refineries.

Due to the low coking rate of petroleum coke and its relatively high proportion of circulating oil, the capacity utilization rate of petroleum coke production has been objectively low. As of the end of 2021, China’s petroleum coke production capacity stood at 138 million tons, with a capacity utilization rate of 21.9%, marking four consecutive years of recovery. Looking ahead, the supply-demand balance is expected to remain tight, and the capacity utilization rate may continue to rise.

2. Imports of petroleum coke are substantial, with an external dependence rate of 30%.

China’s imports of petroleum coke are dominated by high-sulfur coke, which is primarily used as fuel and in combination with other materials to produce prebaked anodes. Exports, on the other hand, are mainly medium-sulfur coke, which overseas companies use primarily for the production of prebaked anodes.

China’s imports of petroleum coke have been substantial and have been steadily increasing in recent years. In 2021, China imported 12.74 million tons of petroleum coke, a year-on-year increase of 24.0%. China’s reliance on foreign sources for petroleum coke rose from 14% in 2016 to 30% in 2021.

China’s petroleum coke exports have generally been on a downward trend, falling from 2.4 million tons in 2016 to around 1.8 million tons in the past two years. This decline is mainly due to lower overseas electrolytic aluminum production and an increase in domestic exports of pre-baked anodes, which has squeezed the market share of overseas pre-baked anode manufacturers. In 2021, China exported 1.86 million tons of petroleum coke, representing a year-on-year increase of 4.4%.

Imports of petroleum coke mainly come from major oil-producing regions, while exports are primarily directed to countries that are major producers of electrolytic aluminum. China’s imports of petroleum coke mainly originate from key oil-producing countries such as the United States and Saudi Arabia. In 2021, the U.S. accounted for 46.9% of China’s petroleum coke imports, and Saudi Arabia accounted for 15.7%. China’s petroleum coke is mainly exported to regions where electrolytic aluminum is produced, where it is used to manufacture pre-baked anodes. In 2021, the proportions of exports to India, the United Arab Emirates, and Australia were 26.8%, 17.4%, and 11.6%, respectively.

2.1 The competitiveness of downstream enterprises in China’s petroleum coke industry has strengthened, and apparent consumption of petroleum coke has been steadily increasing.

With technological advancements, Chinese enterprises engaged in downstream products of petroleum coke—such as pre-baked anodes, graphite electrodes, and negative electrode materials—have seen a significant boost in competitiveness. Both domestic demand and export volumes have continued to rise, leading to sustained growth in production. As a result, demand for petroleum coke remains robust, and apparent consumption has been steadily increasing. In 2021, China's apparent consumption of petroleum coke reached 40.18 million tons, representing a year-on-year increase of 6.6%.

2.2 Petroleum coke production capacity is mainly concentrated along the coast, and market concentration is high.

Petroleum coke production capacity is mainly concentrated in coastal regions such as East China and South China. The regional and enterprise distribution of petroleum coke capacity closely mirrors that of oil refining and petrochemical industries, with the majority of capacity located in East China, South China, and Northeast China. In 2021, Shandong, Liaoning, Guangdong, and Zhejiang accounted for 37.9%, 10.7%, 8.9%, and 7.6% of total output, respectively. Given that the eastern regions have earlier timelines for peaking carbon emissions, future capacity controls in high-energy-consuming industries are likely to become stricter. As a result, some of the oil refining and petroleum coke production capacity may shift westward.

Sinopec boasts high petroleum coke production capacity, accounting for 39% of the total output in 2021. Sinopec’s petroleum coke production capacity is substantial, and most of its facilities are large-scale refineries. Among the top ten petroleum coke production projects, eight are operated by Sinopec, while the other two are managed by CNOOC and Jincheng Petrochemical. In 2021, the three major oil companies—Sinopec, CNOOC, and CNPC—accounted for 56% of the nation’s petroleum coke production, with Sinopec alone contributing as much as 39%. Given its significant influence in the industry, Sinopec exerts relatively little direct intervention in the petroleum coke market, since petroleum coke is a byproduct whose sales are largely handled by its subsidiaries.

3. The ceiling on electrolytic aluminum production capacity is clearly defined, and the demand for petroleum coke is thus constrained.

3.1 The ceiling on electrolytic aluminum production capacity is clearly defined, and the market space for prebaked anodes is limited.

Pre-baked anodes and fuel represent the primary demand sectors, while the overall demand for petroleum coke is relatively limited. In China, petroleum coke is mainly used for producing pre-baked anodes and as a fuel. In 2021, these two applications accounted for 58% and 23% of total demand, respectively. The silicon smelting industry accounted for 5% of demand, whereas graphite electrodes and lithium-ion battery anode materials together accounted for only 2% and 1%, respectively. From the perspective of total demand, pre-baked anodes are constrained by the ceiling on electrolytic aluminum production capacity, and the silicon smelting industry itself is highly energy-intensive, leaving relatively limited room for future output growth. On the other hand, lithium-ion battery anode materials and graphite electrodes—whose demand shares in petroleum coke are relatively low—have relatively limited impact on overall demand. Consequently, the overall demand space for petroleum coke remains limited.

Over the next four years, the compound growth rate of graphite electrode consumption in electric arc furnace steelmaking is expected to reach 18.48%.

Assuming that the share of electric furnace steel reaches 20% by 2025, and that one ton of electric furnace steel requires 2.4 kilograms of graphite electrodes for smelting, the calculated increase in graphite electrode usage for electric furnace steel smelting in 2025 compared to 2021 will be close to 2.75 million tons. During the period from 2021 to 2025, the compound annual growth rate of demand for graphite electrodes in electric furnace steelmaking will reach 18.48%.

4. The shortage of low-sulfur coke is widening, intensifying competition for resources.

4.1 The crude oil quality structure remains stable, and it will be difficult to increase the supply of low-sulfur coke.

4.1.1 The output of low-sulfur coke is gradually declining and is expected to remain low in the future.

China’s crude oil is predominantly low-sulfur, with relatively stable production levels, yet its dependence on imports continues to rise.

The sulfur content of petroleum coke primarily depends on the feedstock. The coking process has relatively little impact on the sulfur content of petroleum coke. Moreover, the quality of crude oil is closely related to its origin: China’s crude oil is classified as low-sulfur crude, making it easier to produce low-sulfur coke as a byproduct of refining and processing. In contrast, major oil-producing countries such as those in the Middle East and Russia have crude oils with higher sulfur content.

Due to China's relatively scarce crude oil resources, crude oil production has remained fairly stable, hovering around 200 million tons. Meanwhile, crude oil imports have continued to rise, causing China's dependence on foreign crude oil to increase from 48.4% in 2008 to 72.1% in 2021.

Imported crude oil is predominantly high-sulfur, leaving limited room for producing low-sulfur coke. China’s crude oil imports are mainly from Middle Eastern countries and Russia. Among China’s major crude oil importers, only Angola and the United Arab Emirates have crude oil with relatively low sulfur content; Saudi Arabia and Iraq both have crude oil with relatively high sulfur content.

Looking at the distribution of sulfur content, in 2021, crude oil with low sulfur content accounted for approximately 18%, while crude oil with high sulfur content reached 49%. Moreover, Iranian crude oil—a potential future supply source—also falls into the high-sulfur category. Although crude oil imports are expected to continue rising in the future, the supply space for low-sulfur crude oil remains relatively limited, and this space may be further squeezed as Iranian crude oil imports increase. Currently, China’s supply of low-sulfur coke largely depends on domestic crude oil refining. Given the stable domestic crude oil production, the room for expanding low-sulfur coke production is fairly limited.

Global supply of low-sulfur coke is growing only modestly.

Domestic crude oil has a relatively low sulfur content, making it well-suited for producing low-sulfur petroleum coke. However, due to domestic efforts to conserve energy and reduce consumption, the output of low-sulfur petroleum coke has been declining year by year. In contrast, overseas crude oils tend to have higher sulfur content, resulting in petroleum coke products that are predominantly medium- and high-sulfur. As a byproduct, refining and petrochemical enterprises find it difficult to modify their refining processes or control sulfur levels solely to obtain low-sulfur petroleum coke. Given that China is the primary producer of low-sulfur petroleum coke, under the influence of the “dual-carbon” policy, its supply continues to face downward pressure, making it challenging for global supplies of low-sulfur petroleum coke to increase significantly.

4.2 Lithium-ion battery anodes are rapidly gaining prominence, driving strong demand for low-sulfur coke.

4.2.1 Downstream demand for low-sulfur coke is evenly balanced among three major segments, while lithium-ion battery anodes are experiencing rapid growth.

Among the demand for low-sulfur coke, lithium-ion battery anodes account for 29%, and the crowding-out effect on demand from traditional sectors will become more pronounced. Graphite electrodes and high-end pre-baked anodes represent the traditional demand segments for low-sulfur coke and hold a relatively high share; meanwhile, demand for low-sulfur coke in lithium-ion battery anodes is rapidly increasing.

Taking Shandong and Jiangsu provinces, where petroleum coke production accounts for a relatively high share, as examples: from January to September 2021, among the downstream demand for petroleum coke, the carbon materials sector for aluminum accounted for approximately 38%, the negative electrode sector accounted for 29%, the carbon materials used in steelmaking accounted for about 22%, and other sectors together accounted for the remaining 11%. The proportion of negative electrode materials has already approached 30%. Due to the rapid development of new-energy vehicles and energy storage, the demand for low-sulfur coke for lithium-ion battery negative electrodes continues to grow at a high rate. Consequently, the crowding-out effect on pre-baked anodes and graphite electrodes will become increasingly pronounced, and their respective shares will continue to expand rapidly.

4.2.2 The substitution of electric arc furnaces for steelmaking, coupled with the upgrading of pre-baked anodes, continues to offer significant demand potential in traditional sectors.

In the future, the share of conventional-power graphite electrodes is expected to decline as electric furnaces take their place. Graphite electrodes are categorized into ultra-high-power, high-power, and conventional-power types. Low-sulfur coke is primarily used to produce conventional-power graphite electrodes. In 2020, conventional-power graphite electrodes accounted for 15% of total production. As the number of ultra-high-power arc furnaces—characterized by large capacity, high efficiency, and lower overall costs—continues to rise, demand for ultra-high-power graphite electrodes will increase, while the share of conventional-power graphite electrodes will decline. However, given the continued growth in the absolute volume of electric furnaces and the fact that graphite electrodes are consumed from existing stock, the demand for low-sulfur coke used in graphite electrode production will still grow.

The overseas pre-baked anode standard specifies sulfur content, and the petroleum coke raw material is primarily low-sulfur.

China’s national standard for prebaked anodes primarily specifies physical characteristics and places relatively few requirements on product composition. Therefore, domestic prebaked anode manufacturers generally procure their materials from sulfur coke producers.

In addition to specifying physical properties, European and American standards for prebaked anodes also set limits on elemental content, with sulfur content not exceeding 2.4%. To meet these sulfur-content requirements, companies increasingly procure petroleum coke with low to medium sulfur levels. As China’s environmental regulations become increasingly stringent, it is likely that domestic prebaked anodes will soon face similar sulfur-content requirements as well. Consequently, the trend toward higher-end prebaked anodes will gradually take hold, and the raw material—petroleum coke—will also move toward lower-sulfur grades.

Exports of pre-baked anodes have grown significantly.

Due to high overseas energy prices and relatively high sulfur content, while domestic supplies of medium- and low-sulfur coke are abundant, the cost advantage of raw materials has become increasingly prominent. As a result, exports of prebaked anodes have continued to rise. In 2021, China's exports of prebaked anodes reached 1.91 million tons, an increase of 20.1% year-on-year and a 70.2% increase compared to 2019, marking substantial growth for two consecutive years.

4.2.3 Negative electrode materials are experiencing rapid growth, further opening up growth potential for low-sulfur coke in the energy storage sector.

Granulation and graphitization are key processes in the production of synthetic anode materials. Synthetic anodes are manufactured by crushing, granulating, graphitizing, and sieving raw materials and binders. The process primarily involves four major steps—crushing, granulation, graphitization, and sieving—which are further subdivided into more than ten specific sub-processes. Although the overall process flow remains largely consistent, the preparation techniques can vary somewhat depending on the specific company and the grade of synthetic anode material being produced.

Among the four major processes involved in the production of synthetic graphite, crushing and screening are relatively simple. The two stages that truly reflect the technological barriers and the production levels of negative-electrode manufacturers are granulation and graphitization. For high-end synthetic graphite, additional processes such as secondary granulation, carbon coating, secondary coating, and doping modification are often employed.

The selection of low-sulfur coke and petroleum coke affects the specific capacity and cycle life of negative electrode materials.

The raw materials for synthetic anodes mainly include needle coke (oil-based needle coke and coal-based needle coke) and low-sulfur coke. In general, high-specific-capacity anodes use needle coke as their raw material, while conventional-specific-capacity anodes typically use cheaper petroleum coke. The choice of raw materials significantly influences the performance of synthetic anodes, affecting properties such as specific capacity, cycle life, rate capability, and compaction density.

Low-sulfur coke has a complex composition and is suitable for mid-to-low-end anode materials with long cycle life and low capacity.

Artificial negative-electrode materials are primarily composed of carbon. Low-sulfur coke has a complex composition and contains relatively high levels of ash and impurities, resulting in a poor microcrystalline structure that is difficult to graphitize. By contrast, needle coke has fewer impurities and a more ordered microcrystalline arrangement, making it well-suited for lithium batteries requiring fast charging and high energy density. Low-sulfur coke, on the other hand, is more appropriate for applications with long cycle lives and lower demands on energy density. If low-sulfur coke is to be processed into high-quality materials, it must undergo a rigorous procedure involving the removal of volatile components under a high-temperature nitrogen atmosphere, which imposes extremely stringent process conditions and significantly increases production costs. Typically, negative-electrode manufacturers blend low-sulfur coke with needle coke in their production processes; the higher the grade of the battery, the greater the proportion of needle coke used. Medium-sulfur coke, by contrast, contains higher levels of impurities such as sulfur and volatiles. Its higher sulfur content makes it more prone to "gas expansion" during graphitization, leading to the formation of pores and making it considerably more challenging to achieve proper crystallization and graphitization. Consequently, it is much more difficult to produce qualified lithium-ion battery negative-electrode materials from medium-sulfur coke.

The market for lithium-ion battery anode materials is booming, with production increasing significantly.

The production of lithium-ion battery anode materials requires a blend of low-sulfur coke and needle coke. For high-energy-density, high-rate batteries, the proportion of needle coke in the anode material is higher; whereas for mid- to low-end batteries with longer cycle lives, the proportion of low-sulfur coke is higher.

Since 2020, the new-energy vehicle market has experienced rapid growth, driving a swift increase in demand for lithium-ion battery anode materials. In 2021, China’s output of lithium-ion battery anode materials reached 720,000 tons, representing a year-on-year increase of 97.3%. The new-energy vehicle and energy-storage markets continue to grow rapidly, keeping demand for lithium-ion battery anode materials robust.

Demand for low-end negative electrode materials remains strong, and the price spread between needle coke and low-sulfur coke has narrowed.

Since 2021, sales of low-end A00-class vehicles such as the Wuling Hongguang Mini have been robust, leading to a supply shortage of low-sulfur coke and a noticeable rise in its price. In contrast, the price increase for needle coke has been relatively moderate. This is partly due to energy consumption controls that have reduced steel production, resulting in weaker demand for graphite electrodes, and partly because the growth rate of high-end anode materials has lagged behind that of low-end anode materials.

The prices of needle coke and low-sulfur coke rose from 5,500 yuan/ton and 2,550 yuan/ton at the beginning of 2021 to 11,000 yuan/ton and 7,400 yuan/ton respectively by July 2022, representing increases of 100% and 191%, respectively. Looking ahead, the new-energy vehicle market is expected to see both high-end and low-end segments growing in tandem, and demand for both low-sulfur coke and needle coke will remain robustly high.

Installed capacity for energy storage has surged, further opening up room for demand for low-sulfur coke.

The installed capacity of new energy sources such as photovoltaic and wind power has surged significantly. Given the pronounced intermittency and seasonality of photovoltaic and wind power generation, demand for peak-shaving services on the power supply side has grown markedly. Meanwhile, the rapid development of distributed generation has further boosted the demand for battery energy storage systems. In 2021, China’s newly installed battery energy storage capacity reached approximately 19.9 GWh, representing a substantial year-on-year increase of 86.1%.

With the rapid expansion of commercial and industrial as well as residential distributed power generation, the battery energy storage market has entered a phase of rapid development, and battery installed capacity is expected to continue its high-growth trajectory.

Since energy storage is sensitive to battery prices, has high requirements for cycle life, but does not demand particularly high energy density, lithium-ion battery anode materials for energy storage tend to be mid-to-low end. This makes low-sulfur coke an ideal raw material, and the potential market for low-sulfur coke in the energy-storage sector is poised for significant growth.

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