Energy Argus Petroleum Coke

Issue 20-49 | Wednesday 9 December 2020

Market overview Key prices

High-sulphur coke prices eke out another gain Petroleum coke spot market $/t Four-week HGI Price ± The US Gulf 6.5pc sulphur petroleum coke price rose for the average ninth consecutive week even as demand continues to wane in Atlantic basin almost every region. fob US Gulf coast 4.5% sulphur 40 77.50 0.00 76.63 The price gained another $1/t this week to reach $72/t, its fob US Gulf coast 6.5% sulphur 40 72.00 +1.00 70.50 cfr Turkey 4.5% sulphur 70 95.00 +0.50 94.00 highest since October 2018. Sulphur adjustment Brazil has been a key buyer in recent months, with a US Gulf coast, per 0.1% 0.28 -0.05 0.31 Pacific basin strong cement market and a nearby distance to the US Gulf fob US west coast <2.0% sulphur 45 155.00 0.00 155.00 coast keeping coke costs relatively in check. US coke exports fob US west coast 3.0% sulphur 45 131.50 0.00 131.50 to Brazil were over 300,000t in October, the highest since fob US west coast 4.5% sulphur 45 85.50 0.00 85.25 cfr China <2.0% sulphur 45 180.00 -1.00 180.50 September 2019. But the rapid climb in coke prices is starting cfr China 3.0% sulphur 45 157.0 0 -2.00 158.13 to push even these buyers out of the market, with at least one cfr China 6.5% sulphur 40 105.50 +1.50 102.38 cfr China 8.5% sulphur 70 97.0 0 0.00 95.13 large company looking to switch all of its plants to coal for cfr India 6.5% sulphur 40 100.00 +1.00 98.38 next year. cfr WC India 8.5% sulphur 70 95.00 +0.50 93.75

This trend has already been occurring for months in India, Petroleum coke calculated prices $/t usually the world’s largest import market. But major buyers Four-week HGI Price ± there have become frustrated with coke’s persistent premium average against coal. They are making large shifts in their fuel mixes Atlantic basin del ARA 4.5% sulphur 40 94.75 +0.50 93.31 for next year, with at least one major cement firm heard to del ARA 6.5% sulphur 40 89.25 +1.50 87.19 be choosing not to commit to term contracts for any US coke del Brazil 4.5% sulphur 40 94.00 +0.75 92.38 supply in 2021. The country’s coke consumption in the first del Brazil 6.5% sulphur 40 88.50 +1.75 86.25 del Turkey 6.5% sulphur 40 92.00 +1.75 89.75 quarter of next year could decline by around half compared Pacific basin with the first quarter of 2020, according to Argus calculations. del Japan 3.0% sulphur 45 149.50 0.00 149.00 del Japan 4.5% sulphur 45 103.50 0.00 102.75 del China 4.5% sulphur 40 117.50 +0.75 115.63 del India 4.5% sulphur 40 114.00 +0.50 112.50 USGC sour crude 3:2:1 refining margins $/bl Netbacks via Ust-Luga fca Antipino 4.5% sulphur 33.49 -0.61 70 fca Nizhnekamsk 4.5% sulphur 35.09 -0.55 Prices calculated by adding relevant fob petroleum coke price to freight rate. 60 50 Coke freight rates $/t Four-week 40 9 Dec ± average 30 Supramax 20 -- USGC to ARA 17.25 +0.50 16.69 Venezuela to ARA 16.25 +0.50 15.69 10 USGC to Turkey 20.00 +0.75 19.25 0 USGC to Brazil 16.50 +0.75 15.75 USGC to China 40.00 +0.75 39.00 -10 USGC to EC India 36.50 +0.50 35.88 -20 EC Saudi Arabia to WC India 10.25 +0.50 9.88 20 Dec 19 20 Apr 20 13 Aug 20 9 Dec 20 Panamax USWC to Japan 18.00 0.00 17.50

Most Indian cement manufacturers have already covered Monthly indexes their fuel requirements until February or March, purchasing large amounts of coal. But a resurgence in the seaborne coal Fuel-grade coke calendar month indexes: Nov $/t market as a result of Chinese coal shortages has some Indian HGI Low High Avg buyers concerned. A cement maker was heard cancelling a fob US Gulf coast 4.5% sulphur 40 68.00 77.0 0 72.63 tender to source 75,000t of NAR 5,500 kcal/kg Australian coal 6.5% sulphur 40 65.00 70.00 67.50 following an extraordinary rally for this grade of nearly $10/t cfr Turkey over the past two weeks. 4.5% sulphur 70 89.50 94.00 91.63 Two leading cement makers together have booked at least fob US west coast 150,000t of domestic coke with IOC after a price cut by the <2.0% sulphur 45 155.00 155.00 155.00 3.0% sulphur 45 131.50 131.50 131.50 state-controlled refiner early this month. There are indica- 4.5% sulphur 45 85.00 87.50 85.63 tions of a slight recovery in domestic coke output following cfr India improved refinery run rates, although it is still well below 6.5% sulphur 40 96.00 98.50 96.63 pre-Covid levels. 8.5% sulphur, WC 70 92.00 93.50 92.38 cfr China With most buyers firmly out of the seaborne market, the <2.0% sulphur 45 177.50 181.00 179.63 best bids are only around the mid-$90s/t on a cfr India basis, 3.0% sulphur 45 156.00 159.00 157.50 with some buyers saying they would only consider purchasing 6.5% sulphur 40 95.00 102.00 97.75 US 6.5pc sulphur coke in the $80s/t. But with the uptick in fob 8.5% sulphur 70 90.50 94.50 92.25 prices and an additional 50¢/t gain in the US Gulf coast-to-east Calculated coke indexes: Nov $/t coast India supramax freight rate this week, net-forward prices HGI Low High Avg for this quality are now at $108.50/t for spot supply. Delivered NWE-ARA January- and February-loading cargoes from the US Gulf 4.5% sulphur 40 83.50 93.75 88.56 were offered at around $102-104/t this week, one market 6.5% sulphur 40 80.50 86.75 83.44 participant said, but this could not be confirmed and no buying Delivered Brazil 4.5% sulphur 40 82.50 92.75 87.56 interest was heard even at these levels. The Argus assessment 6.5% sulphur 40 79.50 85.75 82.44 Delivered Turkey 6.5% sulphur 40 83.00 89.25 85.94 Coke-to-coal calorific comparisons Delivered India Coal 4.5% coke 6.5% coke 8.5% coke 4.5% sulphur 40 102.50 113.00 107.63 Delivered China del ARA $/mnBtu 2.57 3.08 2.90 - 4.5% sulphur 40 103.50 116.25 109.56 % of coal - 120.00 113.00 - Delivered Japan del India $/mnBtu 3.60 - 3.25 3.08 3.0% sulphur 45 148.00 149.00 148.44 % of coal - - 90.00 86.00 4.5% sulphur 45 101.50 104.75 102.56 del Turkey $/mnBtu 2.69 3.08 2.99 - Prices calculated by adding relevant fob petroleum coke price to freight rate. % of coal - 115.00 111.00 - Anode-grade coke monthly assessments: Nov $/t fob USGC $/mnBtu 1.78 2.52 2.34 - Sulphur Low High Mid % of coal - 141.00 131.00 - Green Coal-implied forward curves $/t cif US Gulf 0.8% 205.00 248.00 226.50 1Q21 2Q21 3Q21 4Q21 2021 2022 2023 2.0% 135.00 165.00 150.00 3.0% 80.00 104.00 92.00 fob USGC 4.5% petroleum coke 5.0% 70.00 80.00 75.00 77.50 77.91 78.32 78.16 79.79 fob China 2.0% 185.00 245.00 215.00 fob USGC 6.5% petroleum coke 72.00 72.38 72.76 72.61 74.13 3.0% 175.00 225.00 200.00 del ARA 4.5% petroleum coke fob Mideast Gulf 4.0% 142.00 168.00 155.00 94.75 93.86 94.16 94.45 94.30 96.38 97.50 Calcined del ARA 6.5% petroleum coke fob US Gulf 3.0% 250.00 270.00 260.00 89.25 88.41 88.69 88.97 88.83 90.79 91.84 fob China 3.0% 310.00 360.00 335.00 cfr India 6.5% petroleum coke cif Europe 1.5% 255.00 280.00 267.50 100.00 96.21 93.56 91.98 95.42 93.28 92.82 cif Mideast Gulf 3.0% 285.00 350.00 317.50

Weekly petroleum coke price snapshot $/t

Northwest Europe Japan del 4.5% sulphur 94.75 del 3.0% sulphur 149.50 del 6.5% sulphur 89.25 del 4.5% sulphur 103.50 US Gulf coast fob 4.5% sulphur 77.50 fob 6.5% sulphur 72.00

China cfr <2.0% sulphur 180.00 US west coast cfr 3.0% sulphur 157.0 0 fob <2.0% sulphur 155.00 del 4.5% sulphur 117.50 fob 3.0% sulphur 131.50 cfr 6.5% sulphur 105.50 fob 4.5% sulphur 85.50 cfr 8.5% sulphur 97.0 0

India Brazil Turkey del 4.5% sulphur 114.00 del 4.5% sulphur 94.00 cfr 4.5% sulphur 95.00 cfr 6.5% sulphur 100.00 del 6.5% sulphur 88.50 del 6.5% sulphur 92.00 cfr 8.5% sulphur 95.00

for 6.5pc sulphur cfr India rose by 1/t on the week to $100/t, 3pc sulphur coke from Colombia was offered to one trader at and the 8.5pc sulphur west coast India assessment firmed by $160/t cfr China, while the same grade coke from the US was 50¢/t to $95/t. offered in the mid-to-high $150s/t. Offers for US 6.5pc sulphur coke cargoes in China were Turkey-delivered coke prices continued to move higher this heard at $110/t, while offers for 8.5pc sulphur content supply week, while market activity remain muted. were above $100/t cfr. But few buyers expressed interest at Domestic refiner Tupras is expected to offer some supply these levels. before the end of this year, while the amount of supply to be While there has been firm demand in China because of the tendered remains unclear. tight coal market, expectations of the government issuing new The refiner might be able to tender for term supply, but coal import quotas may subdue coke demand, one trader said. it might have to reduce volumes to adjust for uncertainties, a Additionally, uncertainty surrounding Chinese customs officials’ market participant said. decision to detain a cargo of high-sulphur petroleum coke in Tupras’ Izmir refinery will undergo a two-month shutdown north China could also weigh on demand. Customs officers at for maintenance from January, but this will not impact coke Rizhao port in Shandong province have blocked the 8.5pc sul- output as the company’s only coking unit is at Izmit. phur cargo from Taiwan for more than a week, giving import- But enquiries for seaborne coke are likely to resume in the ers bad memories of similarly blocked cargoes last year, some new year despite availability of domestic supply, as Tupras of which took months to clear. The uncertainty contributed to usually offers supply with high-sulphur content. a large drop in high-sulphur coke purchases for much of 2019. Sustained enquiries for coal purchases imply cement There is still interest from the anode-grade market in 8.5pc manufacturers have already reduced coke’s share in their fuel sulphur Saudi Arabian coke if it has no shot content and is mixes. At least two cement manufacturers were heard looking therefore calcinable. Such a cargo was heard being offered in to source coal this week. this market at a price of around $115/t cfr. But the recent strength in coal prices continues to erode In the lower-sulphur markets, prices have slipped slightly as coal’s discount against coal, with the discount falling below importers fear the market has become overheated. Fuel-grade 20pc last week.

Atlantic basin coke freight rates $/t Atlantic basin coal supply $/t

USGC-ARA USGC-Turkey USGC-Brazil Bolivar USGC Richards Bay 25 110 100 20 90 80 15 -- 70 -- 60 10 50 40 5 30 20 May 20 10 Jul 20 28 Aug 20 19 Oct 20 9 Dec 20 17 Dec 19 17 Apr 20 12 Aug 20 9 Dec 20

Strong China market lifts anode-grade prices allowing calciners to increase prices. Century Aluminum’s Most calcined petroleum coke (CPC) prices continued to Mt Holly smelter in South Carolina previously threatened rise in November on stronger aluminium prices, particu- to close but has since worked out a deal with its electric- larly in China. ity provider and expects to raise production to 75pc of its China’s strong domestic anode-grade market continues nameplate capacity. This will increase CPC demand from to drive CPC demand, with some sellers shunning exports current levels around the second quarter of next year. or saying they would only export at a significant premium. Calciners still have to face tighter anode-grade green Offers were heard in a range from $350-400/t on an fob petroleum coke (GPC) supply, however, as refiners con- basis. tinue to run at lower rates and wait for travel and refined Deals were not heard quite so high, but the fob China products demand to return after Covid-19. Phillips 66’s CPC price rose significantly in November on a handful of 250,000 b/d Alliance refinery in Belle Chasse, Louisiana, an deals. At least two cargoes were heard sold to India in the important GPC producer, remains idled after undergoing $320-325/t fob range, another cargo around $345/t, and maintenance. a cargo to Australia around $360/t, possibly with a slight At least one US calcining facility is under pressure be- premium given its lower sulphur level. cause of dwindling GPC supply and another expects to exit The November range for fob China 3pc sulphur CPC the anode-grade calcined coke market next year. with 250-350ppm vanadium rose to $310-$360/t, up from Weak global supply kept delivered US GPC prices largely $275-$310/t in October. steady in November. No deals for <1pc sulphur coke from A couple of deals were also heard sold to the Mideast Latin America were heard, as refiners in that region return Gulf region in the $330s/t on a landed basis. The midpoint from maintenance or face strong demand from their do- for cif Mideast Gulf 3pc suphur CPC with 250-350ppm vana- mestic markets. dium rose by $15/t to $317.50/t. The midpoint for cif US Gulf coast coke with 0.8pc The midpoint for cif Rotterdam 1.5pc sulphur CPC with sulphur and less than 150ppm vanadium was flat on the 150-250ppm rose by $7.50/t to $267.50/t. month at $226.50/t on a dry metric basis. Calciners in the US also achieved slight price increases The midpoint for cif US Gulf coast 2pc sulphur coke on strong demand, and smelters are looking to settle con- with 150-250ppm vanadium was also steady at $150/dmt. tracts early to avoid further price increases. The midpoint And in China, the strong domestic anode-grade market for fob US Gulf coast 3pc CPC with 250-350ppm vanadium has resulted in fewer GPC cargoes available for export. rose by $5/t to $260/t on the month. Coker rates have increased slightly after some independent Strong LME prices are supporting smelters’ margins and refineries recently completed maintenance, but market

del ARA coke percent of coal % fob USGC coke percent of coal %

ARA 4.5% coke % of coal ARA 6.5% coke % of coal fob USGC 4.5% coke % of coal 160 fob USGC 6.5% coke % of coal 175 140 150 120 125 100 -- 100 --

80 75

60 50

40 25 13 Nov 19 25 Mar 20 5 Aug 20 9 Dec 20 13 Nov 19 25 Mar 20 5 Aug 20 9 Dec 20

del India coke percent of coal % del Turkey coke percent of coal %

cfr India 6.5% coke % of coal cfr Turkey 4.5% coke % of coal cfr India 8.5% coke % of coal cfr Turkey 6.5% coke % of coal 140 140

120 120

100 100 -- -- 80 80

60 60

40 40 13 Nov 19 25 Mar 20 5 Aug 20 9 Dec 20 13 Nov 19 25 Mar 20 5 Aug 20 9 Dec 20

participants are not sure if the increased supply will be enough to stem the rise in prices. The Effects of Coronavirus on Markets Calciners are also needing to secure more Chinese domestic supply to meet increased purity requirements at a domestic smelter. This is another factor keeping some > Blog posts coke in China that would otherwise be sold in the seaborne > Podcasts market. > News stories There is a further disincentive for refiners to export > White Papers as the Chinese currency has recently strengthened against > Webinars the dollar. The midpoint for fob China 2pc sulphur GPC with 150- > and more 250ppm vanadium rose by $12.50/wmt on the month to $215/wmt. The midpoint for fob China 3pc sulphur GPC View the Argus hub page >>> with 200-250ppm vanadium rose by $7.50/t on the month to $200/t.

News

China customs blocks high-sulphur coke cargo market amid an aluminium boom. Chinese customs detained a cargo of high-sulphur petroleum Chinese calcined petroleum coke (CPC) exports dropped coke in north China, according to market participants, reviving to only around 97,000t in October, down by more than 15pc traders’ concerns over the country’s import policy on high- from a year earlier and off by more than 10pc from September sulphur shipments. levels. The cargo in question is a shipment of anode-grade coke Some calciners say they have slowed CPC exports further with 8.5pc sulphur from Taiwan. Customs officers at Rizhao over the past few weeks, worrying that international trades port in Shandong province have blocked it for more than a will not cover the costs of surging green petroleum coke (GPC) week after identifying it as “solid waste”. prices in China. This is not the first time Chinese customs has blocked a Export deals are usually for large volumes and can be high-sulphur coke shipment. Officials blocked a number of car- concluded months in advance. Selling forward in this way goes from Taiwan, the US, Canada and Saudi Arabia at certain can result in a mismatch between the contracted price and ports starting in April 2019, using the same designation. Some production costs as domestic anode-grade GPC prices climb on cargoes waited more than 10 months to be cleared. a weekly basis, leaving the seller struggling to make a profit. A China has banned the import and use of “unqualified” relatively strong Chinese yuan puts further pressure on calcin- coke on paper since 2016. This was widely considered to be ers selling in dollars but covers costs in local currency. coke with more than 3pc sulphur content, based on a Chinese Some foreign customers have contracted first-quarter customs quality standard. But the government never clearly CPC at fob prices that are $75/t or more below current offer defined these qualifications, and higher-sulphur coke has prices. Deals done even less than a month earlier are now low continued to flow into the country. From January to October by comparison with the current domestic market CPC price. of this year, China imported a total of 8mn t of green coke of The Argus assessment for 3pc sulphur calcined coke on an fob which nearly 70pc had more than 3pc sulphur. China basis increased to $335/t in November, up by about 15pc Last year’s crackdown on some high-sulphur cargoes ap- from $292.50/t in October. It is up by about 50pc from April peared to be connected to an initiative to restrict solid waste when China began to restart the economy from the Covid-19 imports to avoid becoming a dumping ground for other coun- lockdowns. Firm aluminium demand in the domestic market, a tries’ unwanted recyclables and scrap metal. It is not entirely result of strong car sales and government stimulus policies, has clear why it was only applied to some cargoes at certain ports. boosted Chinese CPC prices. But the policy did have a chilling effect on high-sulphur de- At the same time, the anode-grade GPC price has in- mand last year as importers could never be sure if they would creased at an even faster pace, as changes in the refining face this roadblock. Between May and October of 2019, China industry have cut supply. While export prices for anode-grade imported only 1.7mn t of greater than 3pc sulphur coke, about GPC are also up by about half from April levels, domestic 60pc less than during the same period of this year and half of market prices for GPC are 10-25pc higher, creating a similar what it was in the year-earlier period. disincentive for exports. Although the recent cargo may be an isolated case rather In addition to tight GPC supply, ample calcining capacity than a sign of further sulphur regulation, the fact that no has also kept pressure on calciners’ margins, even as demand official guidance has been issued so far could create a similar for their product has grown. The large number of calcin- uncertainty that may overshadow China’s high-sulphur coke im- ers makes it a more competitive market than the refining ports. One trading firm said the news would “definitely” affect or aluminium sectors, one calciner said. Although calciners its purchasing decisions in the future. have tried to increase CPC prices in proportion to GPC price By Jiefei Liu and Lauren Masterson growth, pressure from a small number of aluminium smelters has made this difficult, even in the current strong market. China coke calciners shun exports Since CPC increases usually lag the GPC price rise, calciners Chinese petroleum coke calciners have reduced or even halted are still at risk of losing money, the person said. export deals as prices in the seaborne market lag the domestic By Jiefei Liu and Lauren Masterson

US Gulf and midcontinent coker yields $/t Aluminium premiums $/t

US Gulf coker yield US midcontinent coker yield US midwest Japan Europe, duty paid 350 500.0

300 400.0 250 300.0 200 -- 200.0 150

100.0 100

50 0.0 20 Sep 19 14 Feb 20 10 Jul 20 4 Dec 20 16 Jan 19 12 Jun 19 6 Nov 19

LME aluminium prices $/t LME aluminium warehouse stocks mn t

cash 3 month 1.8 2,100

1.7 2,000

1.6 1,900 -- -- 1,800 1.5

1,700 1.4

1,600 1.3 11 Sep 20 12 Oct 20 10 Nov 20 09 Dec 20 22 Jul 20 08 Sep 20 23 Oct 20 09 Dec 20

Goa Carbon ramps up calcined coke output Goa Carbon was forced to shut down plants during Indian calciner Goa Carbon has significantly ramped up its July-September because of a lack of viable orders from the calcined petroleum coke (CPC) production after months of domestic and export markets, with the closures curbing the reduced output. Its November output increased by 59pc company’s calcined coke output. But it resumed operations at from October, indicating a recovery in demand, although last its Bilaspur factory in the central state of Chhattisgarh from 25 month’s production was still lower than a year earlier. November after a four-month shutdown. The Bombay Stock Exchange-listed firm produced a little Frequent maintenance shutdowns and India’s Covid-19 lock- more than 14,300t of CPC in November, up from about 9,000t down earlier this year weighed on Goa Carbon’s production of in October and more than double the roughly 6,250t it pro- calcined coke during April-August. duced in September. But output in November, while higher The company has a licensed capacity to produce 308,000t/ than recent months, was still 7pc lower on the year. yr of calcined coke, with its Paradeep unit having the largest The company produced just over 95,300t of calcined coke capacity at 168,000t, followed by Goa at 100,000t/yr and Bi- over the first eight months of the 2020-21 fiscal year that ends laspur at 40,000t/yr. But the company produced just 148,000t on 31 March, down by more than 14pc from about 111,350t in during 2019-2020, down from 157,000t the previous year, the year-earlier period. indicating capacity utilisation of just 50pc.

Goa Carbon has been facing an “extraordinary adverse” to 75pc of nameplate capacity from its current 50pc, the business scenario of rising costs and dwindling margins, its Chicago-based primary aluminium producer said. This implies chairman Shrinivas Dempo said in the company’s 2019-2020 an- an increase of about 20,000 t/yr of calcined petroleum coke nual report released in August. demand. The company’s April-June sales revenue contracted by Century will keep its conditional Worker Adjustment and 60pc from the year-earlier period to 552.08mn rupees ($7.5mn) Retraining Notification notice in place through March in case because of the lockdown and depressed industrial activity. the deal falls through, but if finalised, the contract will begin Revenues increased on the quarter to Rs879mn in July-Sep- on 21 April and secure electricity through the end of 2023, tember but were lower compared with Rs1.01bn a year earlier. staving off the possibility of total curtailment, which the com- Goa Carbon normally supplies calcined coke to aluminium pany threatened in late October. plants, steel plants and foundries in southwest India and Odi- Mt Holly’s output was cut in half starting in late 2015 as sha. It also exports to aluminium plants in countries including Century fought unsuccessfully for the right to source cheaper France, Greece, Saudi Arabia, Dubai and Oman. electricity from outside the state, while transporting the Indian aluminium production rose by 3pc on the month in power to the plant on Santee Cooper-owned lines. Inability to October as output levels increased in line with recovery in do so made the smelter’s profitability marginal, according to domestic demand. India’s automobile production in October management, resulting in output being pared back to 50pc of increased by 8pc to 2.83mn units from 2.62mn units produced its 231,000 t/yr capacity. in September and was up by 35.6pc from 2.08mn units a year Mt Holly is one of six primary aluminium smelters still oper- earlier. ating in the US. In the third quarter, Century competitor Alcoa Major producers National Aluminium (Nalco), Hindalco, fully idled its Intalco smelter in Washington state, also citing Vedanta and its unit Bharat Aluminium (Balco) produced around profitability as the main factor. 298,700t in October, up from roughly 289,700t in September, By John Betz but down from about 306,350t a year earlier, official data show. Nalco produced about 32,650t in October, down from Indian seaborne coke demand to fall in 1Q 35,100t in September and from 33,050t a year earlier. Hindalco Petroleum coke consumption in India is set to fall dramatically produced around 104,900t, up from 100,350t in September, but in the coming months because most cement producers are down from 111,300t a year earlier. And output by Vedanta and planning to reduce coke’s share in their fuel mixes. its Balco unit in October totalled 161,150t, up from 154,250t a The coke market has bucked the weakness in the wider month earlier, but down from 162,100t a year earlier. energy complex in recent months as supply remains seriously India’s domestic aluminium sales are estimated to have constrained. But the price trajectory may change over the recovered by 25pc to 721,000t during July-September from coming months as demand is set to fall drastically, with ce- 574,000t in April-June, although this was still 25pc lower than a year earlier, Indian metals producer Hindalco said recently. India delivered costs of coke vs coal $/mn Btu Aluminium output from India’s major producers totalled 6 2.4mn t in April-October, down from 2.13mn t a year earlier. USGC 6.5pc Newc 5,500kcal/kg RB 5,500kcal/kg Global aluminium output increased by 3.5pc in October to 5 5.59mn t from 5.40mn t produced in September and up by

4.5pc from a year earlier, International Aluminium Institute 4 data show. By Ajay Modi and Samil Surendran 3

2 Power deal may lift Century's Mt Holly Al output Century Aluminum expects to boost output by roughly 58,000t 1 at its Mt Holly smelter in South Carolina after clinching a pre- 0 liminary electricity deal with state utility Santee Cooper. Jan-2019 Mar-2019 Jun-2019 Sep-2019 Dec-2019 Feb-2020 May-2020 Aug-2020 Nov-2020 The new deal will allow the company to raise production

India coke consumption & production mn t same period last year. Economic activity in the country nearly recovered to seasonal norms in recent months, suggesting refining activity 3.0 Consumption Production is also likely to have recovered. Indian state-controlled refiner 2.5 IOC, the country’s second-largest coke producer, increased refinery runs to full capacity in the first week of November, a 2.0 month ahead of schedule. This poses further downside risks 1.5 to the seaborne coke demand outlook. The weaker petroleum coke intake also suggests the cement sector’s coal demand is 1.0 set to rise.

0.5 The industry may increase its NAR 5,500kcal/kg coal consumption by around 2.5mn t, assuming an 80pc share of coal in 0.0 cement plants’ fuel mix. But this is unlikely to have a signifi- Jan 2019 Jun 2019 Nov 2019 Apr 2020 Sep 2020 cant impact on the overall seaborne coal demand, as state- owned domestic coal producer Coal India’s output perfor- mance would play a greater role in determining the country’s ment plants in India planning to further cut coke consumption import appetite for 2021. next year amid uncompetitive pricing. The recent recovery in seaborne coal prices has eroded Indian petroleum coke consumption in January-March stood coal’s price advantage against coke, but coal is still pricing at 5.7mn t and 5mn t in 2019 and 2020, respectively. This im- more competitively against coke into India. plies coke’s share in cement plants’ mix stood at around 44pc Inland India-delivered prices for US 6.5pc sulphur petro- and 40pc during this period, according to Argus estimates, as- leum coke was at around $4.90/mn Btu this week, while prices suming the cement sector makes up around 70pc of aggregate for NAR 5,500 kcal/kg Australian and South African coal stood coke consumption in the country. at around $4/mn Btu and $4.30/mn Btu, respectively. But some major cement producers are planning to reduce By Firat Ergene coke’s proportion significantly in the first quarter of 2021, as the fuel has been pricing at a premium exceeding 10pc against Ultratech plans cement capacity expansion most grades of coal into India since October. Cement produc- Indian cement producer Ultratech plans to add 12.8mn t/yr ers typically look for coke to hold at least a 15pc discount to its output capacity through new and existing expansions, against coal in order to maximise its use in their fuel mix. potentially raising demand for coal and petroleum coke. Some producers are planning to reduce coke’s share to as The company will pump 54.8bn rupees ($743m) into the ex- little as 20pc in the first quarter of 2021. This could reduce pansion, which is scheduled to be operational by March 2023. India’s petroleum coke consumption by 1.7mn t, or 50pc on the The additions will expand the company’s cement capacity to year, to 1.8mn t in the first quarter of 2021, according to Argus 136.25mn t/yr. calculations — assuming a similar level of cement production The new capacity will be in the “fast-growing markets” on the year. of east, central and north India, Ultratech said. The expan- It remains to be seen whether weaker consumption will sion includes an existing approval for a cement plant in north lead to an equivalent drop in demand from the seaborne mar- India’s Rajasthan state, in addition to a 6.7mn t/yr capacity ket, as the impact might be softened by weaker domestic coke expansion currently under way in north India’s Uttar Pradesh, output. The country’s coke imports, including calcined and as well as in east India’s Odisha, Bihar and West Bengal states. green petroleum coke, stood at 10.8mn t in 2019, according to The expansion plans will not affect the company’s continuing GAC shipping data. deleveraging programme to become debt free by 2023, it said. The country’s coke supply deficit has narrowed steadily Indian cement producers had put expansion projects since the earlier parts of this year, as consumption has fallen and plans on hold earlier this year after Covid-19 lockdowns more steeply than domestic output. The deficit stood at 4.5mn temporarily hit demand and weighed on cash flows. But the t in January-September, compared with 7.1mn t during the cement industry has seen renewed growth with the relaxation

of lockdowns and on the back of a government infrastructure CIL’s efforts were also part of a push by the federal govern- push, underlying demand from the rural economy and indi- ment to discourage consumers from importing coal and to help vidual home builders, the company said. the company lift dispatches and output while trimming its high Indian cement demand has shown signs of a recovery since domestic inventories. the end of the annual monsoon season in September, along CIL’s inventories were about 53.5mn t at the end of Novem- with the return of migrant workers to cities and construc- ber, down from highs of around 78mn t at the end of May but tion sites after the initial lockdown that was implemented in slightly higher than 53.18mn t at the end of October. Stocks March. These factors triggered an increase in construction are currently at 54mn t and may inch up given high inventories activity. at utilities. India’s cement output expanded by nearly 3pc in October Power plants across the country reported total inventories from a year earlier to 26.9mn t, marking the first monthly at the end of November of 37.4mn t, enough to meet con- year-on-year increase after seven consecutive months of falls. sumption for 22 days. This was an increase from 33.94mn t at October output was the highest for a single month since Feb- the end of October but down from highs of over 50mn t a few ruary production of 30.7mn t. months earlier. The Indian cement industry accounts for 71pc of the High domestic stocks could weigh on Indian imports this nation’s total coke consumption. The world’s second-largest year, despite receipts in October registering a first year-on- cement producing nation is also the biggest market for year increase since February. seaborne coke. But a global tightening of coke supplies be- By Saurabh Chaturvedi cause of reduced refinery throughput and a resulting price increase have prompted companies to change their fuel Australia ship queues add to China coal ban fears sourcing strategies and temporarily replace coke with coal Coal ship queues off Australia’s Queensland have shrunk as as a fuel. concern grows that the Chinese import ban will impact the By Ajay Modi 2021 import quota, putting significant pressure on coal mining firms and port operators. Coal India turns to non-power sector to lift sales The vessel queue outside the adjacent ports of the Dal- Indian state-controlled producer Coal India (CIL) is looking to rymple Bay Coal Terminal and Hay Point has shrunk to 12, after lift its sales to non-power sector consumers because of high it rebounded to 21 in early November from a low of 12 in late stocks at utilities. September. It declined to 23 at Gladstone from 32 a month Coal purchases by consumers such as cement and sponge earlier and there are no ships waiting to enter Abbot Point iron mills — categorised by CIL as non-power sector buyers — compared to three vessels a month earlier. have risen steadily in recent months, aiding its efforts to raise Ship queues usually grow at Australian coal ports in Decem- supplies and output. ber, as buyers look to acquire coal in preparation for deliv- CIL is now looking to further expand dispatches to this seg- ery into China when the new annual import quotas open in ment, especially after sales to the power sector were nearly January. This year, with dozens of ships full of Australian coal flat last month from a year earlier, a senior CIL official said. waiting outside Chinese ports, queues are at an unseasonal Utilities bought 39.1mn t of coal from CIL last month, ac- low compared to last December. counting for about 76pc of the total amount of coal dispatched This unseasonably low ship queue may be due to the large by the producer in November. This is down from a share of ship coal queues offshore China or could be an early sign that about 82pc in November 2019, as sales to the non-power sec- traders believe that China will maintain its import ban on tor grew. Australian coal into 2021. This could imply that the diplomatic CIL has made efforts in recent months to widen its con- tensions between Canberra and Beijing have derailed the usual sumer base given weaker national coal consumption at utilities market mechanism of new Chinese coal import quotas that are at least until September, when the country’s coal-fired power applied in January. generation rose for the first time on year-on-year basis since Canberra could further upset Beijing this week if it uses February. The nationwide Covid-19 lockdown earlier this year new powers to veto the state of Victoria’s Belt and Road deal dented coal use. The lockdown was partially lifted in June. with China.

Chinese coal production mn t Concerns that the diplomatic tensions will affect coal trade into 2021 have weighed on Australia’s coal ports, with shares in 400 the new Dalrymple Bay infrastructure fund, which owns 51pc 350 of DBCT, falling by 16pc on their first day of trade earlier this 300 week. Credit agency S&P Global has revised down its liquidity assessment for North Queensland export terminal, which was 250 formally Adani Abbot Point terminal, to less than adequate, 200 citing in part uncertainty about what it will receive from coal 150 handling charges at the port. Gladstone shipped no coal to China in November. 100 Coal mining firms are also looking to cut production while 50 planning for an extended shutdown over the Christmas and 0 New Year period, following the example set by US energy firm Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Peabody at its Metropolitan coking and thermal coal mine in 2016-19 range 2019 2020 New South Wales. But the political tensions between the two countries did Chinese coal imports (all) mn t not appear to affect overall trade in October. A rise in iron ore export receipts sent the value of Australia’s shipments to its 40 biggest trade partner to a four-month high. 35 While concerns over the ban have hit Australian coking coal 30 prices, with the premium hard coking coal price at $103.35/t fob Australia on 8 December, down from $136/t in early Octo- 25 ber before the annoucement, Australian thermal coal prices 20 have risen sharply in recent weeks in spite of the ban. 15 By Jo Clarke 10

Australian thermal coal thrives despite China ban 5 Australian thermal coal prices have risen sharply in recent 0 weeks despite an import ban from one of its traditional mar- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec kets, China. 2016-19 range 2019 2020 Increasingly severe domestic shortages have led to aggressive bidding by China for NAR 5,500 kcal/kg coal from non- Australian origins, including South Africa and Russia, displac- has intensified restocking demand even as domestic producing many usual buyers who were forced to chase Australian tion failed to compensate for steep import cuts since April. material instead. China’s imports of all coal in November dropped sharply by “China may have scored an own goal by banning Australian 44pc on the year, lowering total January-November imports by coal. The market will always prevail,” an international trader 11pc compared with a year earlier. This has severely curtailed told Argus. His comment followed an extraordinary rally of available stockpiles for winter. Coal inventories at China’s nearly $10/t over the past fortnight lifting Australian NAR key coal transshipment ports of Qinhuangdao and Caofeidian 5,500 kcal/kg coal to $46.89/t fob Newcastle on 4 December, continued to decline last week as winter restocking is intensi- according to the most recent Argus assessments. Argus last fying. assessed high-grade Australian thermal coal at $70.33/t fob China’s coal output is overstretched and unlikely to rise Newcastle for NAR 6,000 kcal/kg on 4 December, up from significantly in the near future, the China national coal associa- $59.38/t on 20 November. tion has said recently. China’s import restrictions are threatening to rebound on China’s coal futures have been even more volatile, spik- Beijing because of a severe northern hemisphere winter that ing to a record high on 8 December, with the actively traded

NAR 5,500 kcal/kg coal prices $/t January contract on the Zhengzhou commodity exchange closing at 702.80 yuan/t ($106.50/t). This was an unusually 140 steep increase of Yn110/t or $16.85/t from nearly a month 120 earlier. China’s physical coal prices also surged in tandem with the futures. Argus last assessed Chinese NAR 5,500 kcal/ 100 kg coal at 671.25 yuan/t fob Qinhuangdao on 4 December, up 80 by Yn42.25/t over the week. In dollar terms, the price gained $6.81/t to $102.47/t to reach a more than two-year high. 60 This was much higher than the government-set upper limit of 40 Yn600/t, underscoring the severity of domestic shortages. 20 Additional import quotas of nearly 20mn t were granted to some coastal provinces recently but they have done little 0 Jan-18 Jun-18 Nov-18 Apr-19 Sep-19 Feb-20 Jul-20 Dec-20 to calm the market given the magnitude of China’s demand. fob Newcastle fob Richards Bay fob Qinhuangdao Some Chinese domestic thermal coal indexes had to stop pub- cfr South China fob Vostochny lishing prices last week because they were much higher than the government-recommended levels, illustrating the sensitiv- Year-on-year change in supply mn t ity surrounding shortage-driven price hikes. A series of mining accidents involving fatalities in China 50 have put pressure on the authorities to step up safety inspec- 40 tions nationwide, curtailing domestic output. The latest coal 30 mining accident happened on 4 December in the southwestern city of Chongqing, killing 23 workers, according to state media 20

Xinhua news. This follows an earlier accident in the same city 10 in September that killed 16 workers. As a result, all coal mines 0 in the Chongqing municipality have been suspended since 5 December. -10 Many Chinese producers are reluctant to exceed govern- -20 ment-allocated production quotas for fear of incurring per- -30 sonal and corporate penalties. Inner Mongolia, the country’s Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 second-largest producing region, has faced an extensive cen- Coal imports Coal production Net change tral government-driven probe into overproduction and licens- ing this year. This has prompted coal producers there to resist calls to increase output. Arbitrage opportunities A state-controlled mine in China’s largest coal-producing Increasing December production in China is too late to allevi- province Shanxi was suspended last month for allegedly ate possible shortages in January, prompting aggressive bids exceeding production quotas, which is considered a safety by China-based buyers for increasingly scarce Russian, South hazard. African and Colombian NAR 5,500 kcal/kg coal. This is despite Permission for coal producers in China to exceed pro- the presence of trace elements that could render coal from duction quotas is up to more than one government depart- such origins unsuitable for typical Chinese buyers. ment and producers want a coordinated response before At least four Capesize cargoes of South African coal loading they can proceed legally with expansions. Such a coordi- in December and January were sold to Chinese buyers re- nated response is unlikely after mining accidents that have cently. But the earliest that South African material loading this put the spotlight on safety and because the Inner Mongolia winter can reach Chinese ports would be January, with more mine probe by a central government commission is being time needed for customs clearance before it reaches utilities. conducted independently of other government depart- Strong Chinese demand also pushed up Russian NAR 5,500 ments. kcal/kg prices, which rose by $2.95/t on the week to $61.75/t

fob Vostochny on 4 December. But there is limited availability state-owned utilities are to lock in at least 75pc of purchased of NAR 5,500 kcal/kg coal from Russia, South Africa, Colombia volumes. Utilities that use seaborne coal are encouraged to and Indonesia, prompting some sellers to hold back as they secure at least 80pc of their purchase volumes with domestic expect bids to rise further. supplies, underscoring the government’s push to increase self- The lifting of the overall seaborne price complex on the reliance even as tight import curbs contribute to recent supply back of Chinese bidding has benefited Australian coal by shortages. sustaining its arbitrage into non-China markets. One trader China’s supply tightness could last into 2021, the CNCA estimated the arbitrage for Australian NAR 5,500 kcal/kg coal said, pointing out that the country’s coal consumption is ex- into India at around $9/t on 4 December, based on current spot pected to rise on the back of a steady economic recovery. The prices and freight compared with NAR 5,500 kcal/kg South Af- three coal-producing heartlands of Inner Mongolia, Shanxi and rican coal. The arbitrage spread suggests there is still room for Shaanxi provinces already account for over 70pc of national Australian NAR 5,500 kcal/kg prices to rise further, so long as output and may have difficulty raising production further, the China bids continue to pay higher prices for similar coal from CNCA said. other origins. Chinese NAR 5,500 kcal/kg coal was bid at Yn675/t fob China is still importing large quantities of Australian north China ports yesterday, against offers at Yn695/t. This iron ore to sustain its booming steel industry given a lack of market was last assessed by Argus at Yn671.25/t fob Qinhuang- alternative sources. It remains to be seen if the impact of the dao on 4 December, up by Yn42.25/t on the week. In dollar thermal coal shortages, which disproportionately affect China’s terms, the price gained by $6.81/t to $102.47/t. Prices are sig- heavily populated industrial coastal regions, will be sufficient nificantly higher than the government’s upper limit of Yn600/t, to nudge Beijing into giving Australian coal the same treatment indicating the severity of the domestic supply shortage. as iron ore imports. By Kelvin Leong By Kelvin Leong US EIA lowers 2021 coal burn forecast China’s NDRC keeps base coal price unchanged The US Energy Information Administration (EIA) has lowered its The Chinese government has asked domestic coal produc- outlook for coal consumption at US power plants in 2021 but ers and utilities to keep the base price for coal sold through still expects higher natural gas prices to spur fuel switching. annual or longer-term contracts unchanged in 2021. It is also EIA expects the US electric power sector to consume encouraging market participants to sign term contracts for 537mn short tons (487mn t) of coal in 2021, up from an ex- most of their domestic coal requirements. pected 436mn st this year, according to the agency’s latest Coal producers and utilities have been asked to maintain Short-Term Energy Outlook released yesterday. the base price at 535 yuan/t ($81.90/t) fob north China ports EIA lowered its 2020 and 2021 coal-burn forecasts by 7mn in their 2021 annual contracts for NAR 5,500 kcal/kg coal, un- st and 9mn st, respectively, compared with last month’s less both parties can otherwise reach a mutually agreed price, report. China’s main economic planning agency the NDRC said. EIA is expecting overall power generation to decrease by The 2021 contracts will continue to use the “base price 3.1pc this year to 3,843bn kWh from 3,965bn kWh in 2019. + floating price” mechanism. The floating price is adjusted Generation is expected to rebound to 3,876bn kWh in 2021 as monthly and calculated based on domestic price indexes, as forecasts are calling for colder temperatures in the first quar- has been the case during the last three years. ter compared with the same period last year, EIA said. But there could be complications next year because several Coal-fired generation will jump by 23pc to 943bn kWh next domestic price indexes have had to stop publishing prices, year from an expected 768bn kWh in 2020, EIA projected. But after their prices rose significantly above the government-rec- the new 2021 outlook is still 20bn kWh below last month’s ommended upper limit of Yn600/t. A meeting organised by the expectation. The 2020 forecast is 12bn kWh lower than previ- China National Coal Association (CNCA) in Taiyuan is underway ously expected. to resolve term pricing issues. Coal’s share of total generation will climb to 24pc in 2021 The NDRC urged producers to lock in at least 80pc of after falling to 20pc this year. their production volumes under term contracts in 2021, while Natural gas generation in 2020 is expected to climb to

1,510bn kWh from 1,477bn kWh in 2019. Higher gas prices next standing at 2.7mn t and 210,000t, respectively. year, however, are expected to cut gas generation by 14pc to One cause of tightness in the import market has been the 1,303bn kWh. three-month strike at Colombian coal producer Cerrejon. The EIA raised its expected 2021 natural gas generation fore- mine is set to gradually restart operations this month, which cast by 28bn kWh from last month’s report. The agency said could relieve some of the tightness in the import market and high storage levels will likely limit gas price gains early next boost coal stocks. year. It lowered its forecast for January Henry Hub spot prices Shallow waters on the Rhine have caused some disruption by 9pc from last month to a monthly average of $3.10/mmBtu. to deliveries from ARA stockpiles to end users in recent weeks EIA expects natural gas prices to average $3.01/mn Btu in and levels at key measuring point Kaub remain around the 1m 2021, up by 45pc from this year, and for the delivered cost to mark, according to monitoring service Elwis. But levels are electric power generators to be $3.38/mn Btu, compared with expected to increase to around 1.25m by the end of the week. $2.44/mn Btu this year. Lower power demand amid Covid-19 lockdown measures, Coal producers expect gas to coal switching to increase as firmer nuclear and solar output and coal-to-gas fuel switching natural gas prices climb above $3/mn Btu. cut European coal burn on the year in November, although out- Gas and coal also are facing more competition from renew- put may stabilise this month. ables, EIA said. By Robert Preston Renewable generation will total 754bn kWh in 2020 and account for 20pc of the US’ generation fuel mix. Glencore to cut coal output by 40pc by 2035 EIA expects renewable power will climb to 831bn kWh Swiss trader Glencore plans to reduce its coal production by next year, accounting for 21pc of total generation. The agency 40pc by 2035 to meet its carbon emissions goals, officials from previously expected renewable power would total 763bn kWh the firm said during an investor presentation on 4 December. in 2020 and 840bn kWh next year. Based on Glencore’s 2019 coal output of 139.5mn t, a 40pc EIA this month lowered its 2021 coal production forecast reduction would equate to production of around 84mn t in by 3mn st to 624mn st. While there was a slight drop in the 2035. 2021 forecast, it is a 20pc increase over the 521mn st of coal Officials said that this decline is likely to see the firm’s production expected this year. Colombian coal assets be gone by 2035, while South African The agency also expects coal exports to climb in 2021 to volumes are also likely to decline. Glencore expects demand 67.5mn st from 63.9mn st this year. Both forecasts are higher for high quality Australian coal to continue for a long period. than 64.7mn st and 63.6mn st, respectively, that EIA expected In January-September 2020, Glencore produced 83.5mn in November. t of coal, of which 42.9mn t was Australian thermal coal for By Jim Foster export, 11.5mn t was South African thermal coal for export, 3.8mn t was from Colombia’s Prodeco and 3.8mn t was from ARA coal stocks drop to 31-month low Cerrejon. The balance was domestic Australian and South Afri- Increasing power demand in Europe drew coal stocks at the can thermal coal production, as well as Australian coking and Amsterdam-Rotterdam-Antwerp (ARA) transshipment hub to semi-soft coal output. their lowest level in 31 months last week. In the investor update, Glencore said it expects calendar Stocks decreased by 120,000t on the week to 4.6mn t. This year 2020 coal production to be 109mn t, rising to 113mn t in is the lowest since May 2018, and down by 1.6mn t year on 2021 and 115mn t in 2022 before falling to 112mn t in 2023. year. It is the ninth consecutive week that stocks have been These forecasts assume a recovery in Cerrejon output, which lower than the five-year average for the period. has been severely curtailed this year by strike action — there A port contact said that demand from power plants enter- has been zero output from Prodeco. ing peak season exceeded arrivals at terminals last week. A decision over whether Prodeco will be allowed to remain Stocks at the OBA hub decreased by 100,000t on the week off line is expected imminently. to 1.52mn t, while those at the Ovet terminal declined by The expected depletion in Glencore’s coal asset base over 20,000t to 170,000t. Inventories were flat on the week at Rot- the next 15 years and beyond is part of the firm’s intention terdam’s EMO port and the smaller EBS hub, with stocks now to be net zero of total CO2 emissions by 2050. Reducing coal

production will be a major part of this objective. Petrobras has already received binding offers for four of Coal accounts for around 5pc of Glencore’s revenue and the eight refineries. Two others—208,000 b/d Alberto Pasquali- 10pc of earnings before interest, taxation, depreciation and ni (Refap) and 208,000 b/d Presidente Getulio Vargas (Repar)— amortisation, but will be gradually replaced by metals and will receive binding bids on 10 December. The 130,000 b/d other commodities over the coming years. Abreu e Lima refinery (Rnest) and 166,000 b/d Gabriel Passos Officials said that there is an “urgency” around Glencore’s (Regap) are scheduled to receive binding bids in first quarter coal asset depletion and left the door open for the possible 2021. spinning off of its coal business. But they said that there is A sales agreement for the 333,000 b/d Landulpho Alves not yet a critical mass of shareholder pressure to carve out its refinery (Rlam) in Mataripe will likely be signed in January, assets. Lara said. Petrobras has been in exclusive talks with Mubadala Chief executive Ivan Glasenberg said any coal spin-off for the refinery since July, and had initially planned to approve would happen at “the right time when we feel the shareholder a deal by year-end. pressure is there — we believe it will be a high cash genera- Petrobras said this week that lower domestic crude sales, tor”. resulting from increased competition with alternative suppli- Officials also said they were open to moving around asset ers, would open more space for exports in the 2021-25 period. ownership within the coal portfolio during the upcoming pe- The company estimates 891,000 b/d of exports in the five-year riod of asset depletion. period, up from around 445,000 b/d in 2015-19. Glasenberg announced he will step down in the first half China will remain the main destination for exports, but the of 2021 and be succeeded by Gary Nagle, who has held senior company is also planning to dispatch more crude to Europe, roles in coal and ferroalloys in Colombia, South Africa and the US and India, where low-sulphur Buzios grade has gained Australia. favor. By Alex Thackrah At the virtual Rio Oil and Gas conference this week, some market participants warned that crude importers could face Petrobras refinery sales open feedstock options bottlenecks with existing logistics infrastructure, a concern Brazilian state-controlled Petrobras’ plan to sell half of its Petrobras executives dismissed. 2.2mn b/d of domestic refining capacity will eventually open In addition to fuel, Brazil has long imported crude mainly up new opportunities for domestic and foreign oil suppliers. for blending at Petrobras refineries. Imports have steadily de- Future refinery buyers — the first of which could be Abu clined in response to increasing domestic production of lighter Dhabi’s state-owned investment fund Mubadala next month — grades, mainly from large pre-salt deposits offshore. are likely to negotiate crude supply agreements with Petrobras Crude imports hovered around 175,000 b/d over the past to cover short-term needs. But they will not be required to use five years after peaking at 463,000 b/d in 2004, according to the company’s crude, a senior Petrobras executive tells Argus. data from oil regulator ANP. As pre-salt output has climbed The buyers will have more feedstock sourcing options from in recent years, the share of imported crude in the domestic dozens of domestic producers ranging from small independents refining system has dropped to below 10pc from around 22pc to foreign giants such as Shell. But the new refiners could also in 2000-10. source supply outside Brazil. By Nathan Walters The shift from Petrobras crude supply to a changing mix of crudes could change the quality of the refineries’ petroleum Shandong fuel sales clear the market coke, which is currently a high-quality, low-sulphur anode- Fuel prices and refining margins have rallied in China as supply grade coke. Future quality would depend on what crude slates of blended fuel tightens. the new owners choose to use. Spot gasoline and diesel prices have risen in the Shandong Petrobras is currently in the process of selling eight refiner- refining hub as state-controlled oil firms seek fuel to meet -in ies with around 1.15mn b/d of installed capacity. Downstream cremental demand. This has allowed Shandong’s independent director Anelise Lara said on 7 December that all sales would refiners to boost sales to other provinces. Spot 92 Ron gasoline likely be finalized in first quarter 2022, implying the extension and diesel prices in Shandong rose on 3 December by $3.20/ of a 2021 deadline agreed with anti-trust watchdog Cade. bl and $1.70/bl from a week earlier to $47.90/bl and $58.20/

China domestic arbitrage $/bl bl, respectively, on pre-tax basis. Crack spreads improved, although gasoline margins in Shandong remain negative. Fuel prices have risen in east and central China, as low 12.0 Gasoline: Shandong-Zhejiang arbitrage water levels on the Yangtze river make it costlier to move Diesel: Shandong-Zhejiang arbitrage product by boat from the delta, tightening supply in interior 10.0 provinces such as Jiangxi, Hunan and Hubei. 8.0 The cost of mixed aromatics and light-cycle oil, blending components used to produce road fuel outside the country’s 6.0 refining system, has risen, eroding blending firms’ margins and 4.0 increasing the appeal of refinery output. Blended fuel typically trades at discounts to refinery product, but prices for mixed 2.0 aromatics — a reformate-type import — are linked to crude 0 = Zhejiang prices, which have risen in response to news of the develop- 0 28 Oct 6 Nov 15 Nov 24 Nov 3 Dec ment of several successful Covid-19 vaccines. Diesel demand is falling around Shandong as winter temperatures put a halt to construction projects. But spot prices Shandong refining margins $/bl of China 6 standard diesel in the eastern Yangtze river delta market have risen by more than $7/bl since mid-November, while prices in Shandong are just $3.90/bl higher. This is help- 15.0 Shandong gasoline crack ing pull product around the coast, from Shandong. Products Shandong diesel crack demand in the warmer southern provinces remains strong, and 10.0 construction activity continues there. “We have bought a few cargoes of gasoline and diesel from 5.0 Shandong and Liaoning,” says a private-sector products trader in Zhejiang province. “Their prices are lower state-owned 0 firms’ prices.” The marketing arms of state-controlled Sinopec and -5.0 PetroChina are buying more from independents — and plan to purchase 300,000t (2.4mn bl) of gasoline and diesel from -10.0 28 Oct 6 Nov 15 Nov 24 Nov 3 Dec Shandong refiners in early December, a Shandong refiner says. This exceeds the amount they usually buy, he said, and they are bidding for diesel at Shandong’s prevailing spot price of Yn4,725/t ($57/bl), compared with Yn400/t discounts to the gasoline surplus — the country switched to Euro 5 tailpipe spot price in October. standard fuel on 1 August and China sent 40,000 b/d there in Higher third-party sales, in conjunction with last month’s October, customs data indicate. run cuts, are helping keep refiners’ product inventory levels in Chinese independent refiners are likely to run relatively Shandong below 30pc of capacity. hard throughout January-Ferbruary, supporting crude demand Export economics are deteriorating as Chinese spot prices — before, typically, scheduling turnarounds in March-April. rally. But Chinese refiners plan to maintain high export levels China’s crude imports rose to 45mn t (11.08mn b/d) in Novem- this month, of around 800,000 b/d of gasoline and diesel. ber, rebounding from a six-month low of 10.06mn b/d a month Private sector Rongsheng’s 800,000 b/d ZPC refinery in Zhe- earlier, preliminary customs data show. China’s crude imports jiang loaded a 500,000 bl gasoline cargo from Zhoushan port averaged 11.03mn b/d in January-November, up by 9.2pc from on 4 December for Singapore, Vortexa said — likely to be the the same period last year. The year-to-date import growth has refinery’s first overseas shipment of road fuels. Pakistan has narrowed as demand eases. removed import duties on gasoline under a free trade agree- China’s total crude imports are likely to hit 550mn t ment with China, and is becoming a growing outlet for China’s (11.02mn b/d) in 2020, up by about 9pc from last year, a senior

executive at the country’s biggest refiner state-controlled stricted pool of clean fuel export quotas to private-sector Sinopec said in November. firms will embolden more to lobby for export rights. Hengli, By Wei Xiong one of the world’s largest polyester yarn producers, is inter- ested. And Shenghong, another massive textile producer, will Petrochemical expansions hit China’s refiners open a 320,000 b/d refinery in Jiangsu in August and is likely China’s clean fuel exports, long a means of balancing domestic to request a quota. This means that oil trading firms and pro- supply, are increasingly taking their cues from petrochemi- ducers will have to pay far closer attention than before to the cal markets, intensifying the regional competition forcing the profitability of products such as PTA, polyethylene terephthal- closure of older refineries elsewhere. ate (PET) and ethylene. Refiners must be on their mettle The country’s combined exports of gasoline, diesel and too, as rising output of road fuel by petrochemical firms will jet fuel rose above 1mn b/d for the first time in six months in increasingly spill into Asia-Pacific products markets. October. This apparent revival in export demand provided the And the long-awaited restart of another petrochemicals Chinese ministry of commerce (MOC) with a useful pretext to giant in the region early next year will add to the growing expand its short list of clean fuel export quota holders. The pressure on a crowded and oversupplied Asia-Pacific refinery MOC is keen to head off criticism that it misread the market sector. Malaysia’s state-owned Petronas is on course to restart when doling out export allowances earlier this year — around its 300,000 b/d Pengerang refinery and petrochemicals joint 30pc of its allocations for 2020 are yet to be used up. venture with state-controlled Saudi Aramco in the first quarter Under the new quotas, major private-sector refiner of 2021. The project was originally due to come on line in April Rongsheng Petrochemical will be allowed to export just over 2019, but start-up was pushed back by a fire and explosion that 7.9mn bl of clean fuels this year, while the Huajin Chemical month, and delayed further by another fire in March this year. refinery, owned by state-owned Norinco, will be permitted to Lower demand for transport fuels because of the pandemic, ship 397,000 bl. And the MOC has allocated state-run refiner weaker margins and rising competition from China have left PetroChina an extra 15.5mn bl of 2020 export quotas on top of over 500,000 b/d of regional refining capacity facing closure, the 147mn bl it already had. mainly in Australia, New Zealand and the Philippines. Exports are a vital pressure-relief valve for China’s oversupplied oil products markets. A rise in outbound deliveries Texas imports of Canadian heavy crude drop supports margins on domestic sales, which make up the bulk Imports of Canadian crude into the US rose slightly in Sep- of Chinese refiners’ core revenues. But higher exports have tember from August, but movements of heavies to Texas fell the opposite effect on international prices. In Europe, a key sharply. destination for Sinopec’s overseas products sales, diesel crack The US imported 3.4mn b/d of Canadian crude in Septem- spreads are at their weakest for 12 years, while depressed ber, up by 15,000 b/d from the month before according to the transport fuel usage globally because of the Covid-19 pandem- Energy Information Administration (EIA). The latest data point ic has drastically shrunk demand for China’s surpluses. is 4pc lower than the 3.6mn b/d average seen in the first eight And Chinese clean fuel exports are likely to further de- months of the year. couple from global oil market economics over the coming Texas imported 332,000 b/d of Canadian crude in Septem- years, as domestic oil companies move further downstream in ber, up 7pc from August. A rise in light crude more than offset an attempt to capture more-attractive petrochemical mar- a decline in heavy crude imports, which fell to a 19-month gins. Rongsheng — whose 800,000 b/d ZPC refinery in Zhejiang low. Light Canadian crude into Texas averaged 45,000 b/d in province is now China’s largest by crude distillation capacity — September, an increase of 43,000 b/d month-over-month and is primarily a synthetic fibre business, meaning its profitability the highest since May 2016. Six out of nine months this year depends more on the price of purified terephthalic acid (PTA) have seen light Canadian crude imports, compared to 2019 than on gasoline or diesel values. The firm bought at least which saw four months total. 16mn bl of mainly sour crude on the spot market in October to Texan imports of Canadian heavy crude averaged 264,000 feed the plant’s new units, at a time when sour grades were b/d in September, for a decline of 41,000 b/d from August. This relatively expensive and products margins were poor. is the lowest since February 2019 and a 196,000 b/d drop from The MOC’s decision to open up the hitherto closely re- a record-setting July 2020 when 460,000 b/d was imported.

Previously the largest exporter of heavy crude into Texas, quarter 2020 consumption higher by 2.2pc to 3.7mn b/d. Cenovus shipped less than 4,000 b/d into the state in Sep- Energy and equities prices have climbed with optimism tember, two months removed from shipping 108,000 b/d in that a widely distributed Covid-19 vaccine would restore com- July. This is the lowest since March 2016 for Cenovus while mercial activity to pre-pandemic levels. Prices rose months cross-town rival MEG Energy was the largest heavy crude ahead of any real availability of the vaccine. The US expects to importer into Texas in September at 65,000 b/d. Cenovus said distribute vaccines to healthcare workers this month; US infec- it embarked on a turnaround at its Christina Lake project in tious diseases expert Anthony Fauci said the vaccine could be late-September. more broadly available in the spring. US refiners have braced Minnesota showed the largest increase among states import- for a long winter. ing Canadian crude in September. Minnesota imported 370,000 US jet fuel forecasts were revised lower in every quarter of b/d in September, up by 52,000 b/d from the month prior. Heavy 2021 compared to November. The largest drop was a 1.1pc re- crude accounted for nearly 96pc of imports into the state. duction to 1.6mn b/d in the fourth quarter. But EIA increased Illinois remains the top importer of Canadian crude at 1.1mn its estimated fourth quarter 2020 consumption by 3.4pc to b/d in September, up by 2pc from the month before. About 1.12mn b/d and third quarter consumption by 1.9pc to 970,000 734,000 b/d of heavy Canadian crude was imported into Illinois b/d. in September, down by 2,000 b/d from August. ExxonMobil and US passenger screenings surpassed 1mn four times around Phillips 66 remain the largest importers into Illinois, regardless of the Thanksgiving holiday, despite officials urging residents to grade, at 274,000 b/d and 261,000 b/d respectively. stay home. That demand quickly shrank in the first week of Heavy crude production from Alberta’s oil sands region was December, slumping back below a third of prior year screen- mostly flat in September compared to the month before, aver- ings and levels seen at the beginning of November. Despite aging 1.8mn b/d. Data from the Alberta Energy Regulator (AER) this, US jet fuel demand rose to a four-week high during the shows production rising by 155,000 b/d in October along with week ended 4 December even as traveler throughput at US air- an increase in exports out of the province, but state-by-state ports eased nearly 5pc lower. Supported by stronger futures, data from the EIA is not yet available for that month. spot market prices rose in the Atlantic coast, Gulf coast and By Brett Holmes west coast regions. Product supplied, a proxy for national jet fuel demand, US reduces 2021 fuel demand outlook increased by 15.4pc to 1.31mn b/d last week, marking the The US lowered 2021 fuel demand expectations from a Novem- highest level recorded by the Energy Information Administra- ber forecast in its latest Short-Term Energy Outlook. tion (EIA) since the week ended 6 November. The Energy Information Administration (EIA) revised its The global crude consumption outlook was revised lower outlook for gasoline and jet fuel consumption next year slightly from the previous outlook by 0.6pc for 2020 and 2021, to lower compared to a November forecast, and left diesel con- 92.38mn b/d and 98.16mn b/d, respectively. An increase in sumption unchanged. The outlook increased diesel and jet fuel estimated 2021 Chinese consumption, by 0.4pc to 15.14mn b/d, consumption estimates for the final months of 2020 compared offset reductions to OECD and non-OECD demand. OECD de- to the November forecast. mand was lower by 0.5pc to 44.83mn b/d, and non-OECD lower Gasoline consumption would average 8.76mn b/d next year by 0.7pc to 53.33mn b/d. under the December outlook. First quarter consumption was US Gulf coast refining margins, as measured by a 3-2-1 West revised lower by 1.1pc to 8.41mn b/d, but would climb through Texas Intermediate (WTI) crack spread, averaged $6.60/bl in the third quarter before a seasonal drop to end the year. The November, down by 90¢/bl from the previous month, and $4/ outlook for fourth quarter 2020 gasoline consumption fell by bl below year-ago levels. 2.6pc to 8.23mn b/d. By Elliott Blackburn The diesel consumption outlook for 2021 was little changed at 3.99mn b/d, following changes of no more than 0.2pc in US Gulf LSFO hits pre-pandemic levels either direction for second, third and fourth quarter consump- US Gulf coast low-sulphur fuel oil (LSFO) barge prices finally tion. Fourth quarter 2020 consumption was higher by 1.2pc maintained levels above the $50/bl threshold late last month, compared to the prior month outlook, at 3.98mn b/d, and third at prices last seen before the Covid-19 market crash, as tight

supply has placed bullish pressure on the marine fuel sector. availabilities of LSFO blending supplies and opened arbitrages Gulf coast LSFO rose above the $50/bl level on 20 Novem- out of the Gulf coast. The market is expected to remain stag- ber at $50.30/bl. Prices have steadily increased since, reaching nant until the new year. as high as $54.20/bl on 2 December, slightly above the 6 March By Kayla Meyertons settle of $52.80/bl. The US Covid-19 outbreak sank prices by $11.30/bl over 6-9 Russian refineries raise throughput March, pushing prices to as low as $23.80/bl on 21 April as the Russian refineries increased their crude and condensate Nymex WTI Intermediate contract fell into negative terri- throughput in November by 8pc from October after completion tory. Since that yearly low, US Gulf LSFO values have gradually of autumn maintenance. recovered amid fluctuating demand amid shifting Covid-19 Preliminary energy ministry data show Russian refineries mitigation measures. processed 5.4mn b/d (22.25mn t) of liquids in November, com- LSFO’s price recovery can largely be attributed to shrinking pared with 5mn b/d (21.29mn t) a month earlier. The ministry prompt supply in the US Gulf coast this fall, as low crude runs discloses numbers in tonnes and does not break down between tightened availabilities of blending components to produce crude and condensate. finished LSFO. Gulf coast refinery utilization settled at 80pc as Supplies of liquid hydrocarbons to Russian refineries by of 27 November, a 15pc drop from year-ago levels, according all means of transport in November were slightly above the to the Energy Information Administration (EIA). Low crude runs amount that was processed, at 5.47mn b/d (22.47mn t), up by in the Gulf can be tied to back-to-back hurricane shutdowns 7pc from October, the ministry data show. this fall as well as multiple refineries shutting down for winter Russian refineries receive more than 80pc of their required maintenance. liquids through pipelines operated by state-owned Transneft. Refined products including vacuum gasoil, slurry oil, at- These supplies were around 4.6mn b/d (19.08mn t) in Novem- mospheric tower bottoms and vacuum tower bottoms can be ber, up by 8pc from October. Some refineries receive crude by utilized to blend LSFO and are all produced by various refining rail and some get condensate by pipelines that are not oper- processes. But as runs have fallen, less of these refined prod- ated by Transneft. ucts is being produced, leaving the LSFO blending pool thin Rising crude and condensate deliveries to Russian refiner- and buyers strapped to find offers. ies in November led to a decline in exports along Transneft’s As a result, Gulf coast residual fuel oil refiner and blender pipelines, which carry around 80pc of Russian crude exports. net production averaged at 46,000 b/d this November, down Transneft’s pipeline system moved around 3.5mn b/d (14.63 by more than 61pc from year-earlier levels, EIA data show. mn t) for export in November, down from roughly 3.7mn b/d EIA Gulf coast fuel oil inventories were an additional (15.94 mn t) in October. The decline was seen to non-CIS des- indicator of weak LSFO prompt supply, as stocks settled at tinations. Shipments to Belarus edged up by 10,000 b/d from 16.4mn bl the week ending on 27 November, down by 4pc from October to 380,000 b/d in November. October and a 28pc decline from a near two-year high reached By Anastasia Krasinskaya at 22.9mn bl this June. Covid-19 lockdowns generated a fuel oil glut this summer, subduing all market demand, yet fuel oil Half of newbuilt dry bulkers fitted with scrubbers inventories have gradually declined since the mid-year peak, in Shipping association BIMCO’s data show 47pc of all newbuild line with the Gulf coast’s current market dynamic of thin LSFO dry bulk carriers delivered this year were fitted with scrub- supply. bers. Vortexa also indicated 2mn bl of vessels carrying LSFO are The Panamax sub-group had the highest fittings — 81 out of set to arrive in the US Gulf coast in December, marking the the 150 newbuilds. highest number of LSFO imports observed since March. A spike Vessels with larger bunker consumption have historically in imports may be tied to low prompt supply, as a result of opted for scrubbers, and all subgroups above the Panamax size lowered production levels of finished LSFO, as wholesale sup- had 85pc newbuilds, or more, fitted with scrubbers. pliers look to fill late quarterly demand for end-users. This amount of scrubber fittings comes despite the spread Should a Covid-19 vaccine emerge in early 2021, LSFO between high and low-sulphur fuel being much lower during prices are likely to decline amid higher crude runs, increased 2020 than expected, hitting the economic argument for using

3.5pc sulphur fuel oil (HSFO). weeks and record the contract’s largest month-on-month gain In Rotterdam, 0.5pc sulphur fuel oil has been $20-70/t since March. Support came from forecasts of a cold spell in more expensive since March than HSFO, compared with $300/t key power demand hubs, increasing expectations that carbon- at the start of 2020. intensive generation would be needed to meet rising heating “It is still worthwhile to mention that 2020 year-to-date av- demand. erage spot market earnings for a scrubber-fitted capesize have Despite being as high as €30/t CO2e during intra-day trad- exceeded that of a non-scrubber fitted capesize by $2,818/d — ing during the following session, the contract ended down on an increase of 27pc,” BIMCO chief shipping analyst Peter Sand the day, tracking weaker moves in the wider energy complex. said. Carbon prices briefly strengthened alongside wider markets in Scrubber installations are set to decline significantly, the middle of the week, before both fell back during the next according the shipping classification society DNV GL. Some session. 4,384 ships are set to be scrubber-equipped this year but only But the product recorded a final rally in the last session of around 150 ships will be equipped with scrubbers in 2021. This the week to recoup any residual downside from earlier in the can be attributed to poor scrubber economics and environ- period, finding upward momentum from an impending lack of mental concerns over scrubber waste. fresh supply entering the carbon market. But HSFO demand has risen globally over the past few EU ETS allowance auctions for 2020 will end on 14 Decem- months, including in Europe’s biggest bunkering hub Rotter- ber, and the European Commission has said that 2021 auctions dam, as ships already retrofitted return to sea. will not begin until late January or early February for “techni- The scrubber spread could widen as shipowners lean cal reasons”, leaving a period of around seven weeks when towards smaller ships, which are less likely to have scrubbers participants will be forced to source permits on the secondary installed. market. This would dampen demand for HSFO, but increase demand There is likely to remain only limited downward pressure for 0.5pc fuel oil. on carbon prices this week as the market enters the final full By Nana Kutin week of allowance auctions. Any outcome from European Council talks concerning cli- EU ETS allowances rallied in week 49 mate action could also drive price moves. EU leaders meet on EU emissions trading system (ETS) allowance values rose to 10-11 December and are expected to discuss plans to increase their highest since mid-September at the end of week 49, as a the bloc’s 2030 greenhouse gas (GHG) emissions cut target looming supply squeeze added to support from expectations of from 40pc against 1990 levels. A more ambitious goal will colder weather. require reforms to the EU ETS to ensure the target is met. The EU ETS December 2020 contract ended week 49 at The UK’s new target for the same year could add to pres-

€30.10/t of CO2 equivalent (CO2e), up by €1.93/t CO2e from sure on the EU to set a more ambitious goal. The UK said last the end of week 48. This was the contract’s fifth consecutive week that it will commit to cutting GHG emissions by 68pc week-on-week rise, and its largest since the week beginning 24 from 1990 levels, up from an existing target of 57pc under the August. fifth carbon budget. Last week’s close marked only the second time since The European Commission has also set out new policy doc- the full launch of the EU ETS in 2008 that the benchmark uments aimed at reaching 30mn zero-emission cars by 2030. front-year product has closed above €30/t CO2e, following its The commission is working on new CO2 standards, pollution

€30.46/t CO2e close on 14 September. The two occasions prior and other rule changes to push industry towards the targets. to this were both in 2006, during the pilot phase. By Victoria Hatherick Increased carbon market volatility saw the contract fluctuating between gains and losses in every session of the week. Sinozoom plans battery anode material plant This compares with a run of seven consecutive sessions of Chinese anode material producer Sinozoom, also known as gains on 20-30 November. Zhongke Xingcheng, plans to build a 50,000 t/yr battery anode The front year rallied in the first session of last week to material plant in Ningxiang city in southwest China’s Hunan break above the €29/t CO2e mark for the first time in over 10 province.

The project’s total investment cost is 1bn yuan ($152.5mn). Refinery operations update But other details, including the construction plan and launch date, were undisclosed. US midcontinent China accounts for 65pc of global graphite mining and pro- Husky reported a fluid catalytic cracking (FCC) unit up- cessing output, 100pc of active anode precursor production and set last week at its 170,000 b/d refinery in Lima, Ohio. The 83pc of active anode material output, according to Melbourne- refiner notified state environmental monitors on 2 Decem- based Syrah Resources’ managing director Shaun Verner. ber of a power outage affecting the unit’s incinerator stack. Rapid developments in the new energy vehicle market over Increased flaring ended on 3 December. FCCs convert vacuum the past three years have bolstered demand for anode mate- gas oil primarily to gasoline blendstocks. rial and raised consumption of graphite. China’s newly installed capacity of power batteries reached US west coast 5.9GWh in October, up by 44pc from a year earlier. Production Valero reported increased flaring over the weekend caused rose by 47.9pc to 9.9GWh over the same period, according to by a process unit upset at its 145,000 b/d refinery in Benicia, China’s automotive manufacturers association (CAAM). California. The company reported flaring at 10:40am ET on 5 Established in 2001, Sinozoom is a high-tech enterprise December, according to a filing to state hazardous materials specialising in the research, development and production of monitors. The cause of the flaring from the unidentified unit lithium-ion battery anode material. Besides the Ningxiang was under investigation. Valero does not typically comment plant, Sinozoom has production bases in Tongren city in south- on refinery operations. west China’s Guizhou province and Shimian city in southwest China’s Sichuan province. Argus assessed domestic prices for 94pc graphite flake, which is the main feedstock for anode material, at Yn3,400- 3,900/t ex-works on 1 December, unchanged since 10 No- vember because of a balanced supply and demand situation. Producers have built enough inventories in preparation for typically slower logistics services during winter.

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