The Outlook for Green Coke Used in Aluminum Smelting 2007 - 2011
Ron M. Garbarino, Chief Commercial Officer, CII Carbon, L.L.C.
CRU Aluminum Conference, May 2007
Overview
In 2006 approximately 34 million tons of primary aluminum were produced requiring
about 13.5 million tons of calcined coke. Looking ahead, calcined coke demand for
aluminum production will jump to 18 million tons per year (tpy) by 2011.1 Worldwide,
this additional 4.5 million tpy of calcined anode coke will require an extra 5.8 million tpy
of green petroleum coke (green coke).2
The definition of “anode grade” green coke has changed in the last decade. Calciners
have had to deal with ever increasing green coke variability, temporary interruptions of
specific coke supplies, and the loss of some key traditional coke supplies. Regional
quality of calcined coke is influenced by changes in green coke quality, which are, in
turn, keenly dependent on both volume and quality of crude oils refined in those regions.
The key factors that are contributing to changes in green coke quality are reviewed and a
perspective on the quality in the medium term is provided.
Aluminum smelters desire reliable deliveries of consistent quality calcined anode coke
and, ideally, steady or declining costs. However, calcined coke costs have increased
significantly in the past few years. The cost of calcined coke has risen more than 25%
from the fourth quarter of 2004 to the second quarter of 2006. Calcined coke prices have
since continued to rise, primarily driven by the price and availability of green coke. These
increasing costs are associated with the higher values of alternative applications for green
coke, higher transportation costs, and greater demand for higher quality green cokes.
Historically the first two factors have not played as significant a role in determining the
price of green coke for aluminum application, as they do now. There were no high-priced
competing markets, and transportation costs allowed relatively easy movement of cokes
to off-shore calciners.
The outlook for the supply of green coke ultimately required by the aluminum industry is
reviewed in this paper. There will be sufficient green coke, and the incremental and
marginal decreases in the resulting calcined coke quality will be managed with continued
use of improved technology at smelters. The delivered costs of calcined coke will
continue to be strongly influenced by the competing markets and other cost factors for
green coke.
1
Aluminum production as per CRU Aluminum Quarterly January 2007 multiplied by 0.40 (CII Internal
Working Assumption) to determine calcined coke requirement.
2
Assumes green coke requirement is 1.3 tons (basis dry) for every ton of calcined coke produced.
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Additional Requirements for Green Coke, East and West
In 2006 approximately 34 million tons of primary aluminum were produced requiring
about 13.5 million tons of calcined coke and 17.5 million tons of anode grade green
petroleum coke. Demand from the aluminum industry typically accounts for about 75%
of all calcined coke demand.
World production of aluminum is forecasted to increase over 11 million tpy by 2011 as
compared to 2006 production. Approximately 4.2 million tpy will be a result of
production increases in the Western World, while 7 million tpy will be a result of
increases in the Eastern World, primarily China (5.8 million tpy).
As a result, approximately 4.5 million tpy of additional calcined coke will be required
over the same period. (This paper does not address the requirement for additional
investment in calcining capacity.) This additional calcined coke demand will require 5.8
million tpy of green coke.
This demand in the Western World for green coke will be approximately 2.2 million tpy
greater by 2011, while Eastern World demand will be approximately 3.6 million tpy
greater in the same period3. This requirement is shown in Chart 1. The distinction
between Western and Eastern World demand is important.
Chart 1. Cumulative Incremental Green Coke Requirements from 2007 to 2011
4,000
Western World
3,500
Eastern World
tons (x 1000)
3,000
2,500
2,000
1,500
1,000
500
0
2007
2008
2009
2010
2011
World production of green petroleum coke in 2006 was estimated to be 87 million tpy
and is forecasted to grow to 118 million tpy by 20114. This is shown in Chart 2. The
requirement for the aluminum industry is only 20% of the total green coke produced in
3
Aluminum production as per CRU Aluminum Quarterly January 2007 multiplied by 0.40 (CII Internal
Working Assumption) to determine calcined coke requirement and assumes green coke requirement is 1.3
tons for every ton of calcined coke produced
4
As per Jacob’s Consultancy
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
the world. The total requirement for all calcined coke applications constitutes about 27%
of the total green coke production. By 2011 green coke demand from aluminum
production will rise to 23.4 million tons but will still constitute about the same proportion
of the total production, 20%. Total calcining requirements for green coke will rise to 31
million tpy comprising about 26% of the total.
Chart 2. Worldwide Green Petroleum Coke Production from 2002 to 2011.
140,000
120,000
tons (x 1000)
100,000
80,000
60,000
40,000
20,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Jacob's Consultancy
Strictly from the abundance of green coke production forecasted, one might conclude that
the situation for green coke is not alarming. This is comforting given the lack of any
viable substitute for anode production. It is clear that the industry will not suddenly
discover that there is a shortage of green coke. However, much of this green coke is not
of suitable quality due to its structure or its high impurity levels. The available green
coke for smelters is much tighter when cokes with unacceptable physical properties,
structure, or with unacceptable impurity levels (vanadium above 700 ppm, for example)
are not included.
However, there are existing green cokes of suitable quality not used as anode coke for
economic reasons. Specifically, they are more costly (inland Brazilian production located
in Minas Gerais State, for example). These cokes, coupled with the additional production
of other suitable green cokes forecasted, will provide a sufficient pool of green cokes
throughout the period for smelters, albeit perhaps at higher cost (discussed in more detail
later).
Coke Supply by Regions
Freight costs to move green and/or calcined coke between geographical regions place
economic pressure to use materials in the area where they are produced. (A discussion of
freight costs is presented in a later section.) From this standpoint, regional forecasts for
additional green coke production and the resulting quality (primarily driven by crude oil
supplies for the region) are important to consider. Calciners and smelters must now adapt
more to developments within their regions.
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Four main geographical areas will influence the supply of green and calcined coke
available to Western World smelters; North America, the Middle East and India, South
America, and China. Supplies to Eastern World smelters are primarily influenced by
China.
North America
North America continues to be the largest producer of green coke in the world, and there
is over six million tpy of calcining capacity located there. Sixty percent of this capacity is
located in the US Gulf Coast. Given the large amount of green coke production, existing
assets, and import/export capability, this region will continue to play a large role in
supplying Western World smelters.
The production of green cokes in North America suitable for aluminum application is not
forecasted to increase materially. However, the proximity to South America offers
accessibility, albeit at high freight costs, to new green coke sources as covered below.
Middle East and India
Significant new calcining capacity and some new coking capacity are planned in the
Middle East and India. These geographic regions have good accessibility to the new
smelters planned in the Middle East and expansions in India. This region is a net
importer of green coke.
South America
South America is an important region due to the forecasted expansion of coking capacity
that is planned there. Production in Brazil is planned to increase by 1.8 million tpy to 4
million tpy by 2011. Importantly, the coking expansions will be supplied by domestic
sources of crude oil and the resulting coke will be, in large part, suitable for anode
applications. Notwithstanding the comments regarding the potential cost issues discussed
later, the introduction of this coke into anode grade applications would provide a
significant source of low sulfur, medium vanadium content green coke for the industry.
China
In China, oil refining is projected to grow significantly as demand for transportation fuels
increases. While projections vary, it is forecasted that there will be an additional 7.6
million tpy of green coke by 2010 as compared to 2005.5 This additional projected output
in green coke will be enough to supply the Eastern World requirements and, in theory,
provide additional green coke for export to Western World calciners.
5
As derived from a 2006 study prepared for CII by FACTS Inc. and EWCI Ltd.
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
In conclusion, there should be a sufficient supply of green coke to serve the on-going
requirements of the aluminum industry in the period. Additional green coke production in
Brazil and China will figure predominately in providing this additional supply.
Green Coke Quality
There has been much discussion recently about what constitutes anode grade green coke
and if new coke quality will be suitable for anode applications. Viewed simply, anode
grade green coke is any petroleum coke that is used to make an anode. The most
important impurities are sulfur, vanadium and nickel. Today, the impurity levels in green
coke range from 0.3% to 6% for sulfur, 10 ppm to 600 ppm for vanadium, and 10 ppm to
300 ppm for nickel. Sponge cokes with a relatively low thermal expansion coefficient
have also been favored. The quality of “anode grade” green coke has changed, however,
and will continue to change over time. A review of the influences on green coke quality
follows:6
The crude oil processed by refineries has the greatest single impact on coke quality.
Crude oil has varying amounts of sulfur and metals. Those chemical impurities (such as
vanadium, nickel and iron) in crude oil which are not removed in the refinery desalter
operation accumulate in the residual oils and then in the coke via the coking process.
The structure of the coke is fixed by the character of the feed to the coker. A highly
aromatic coker feedstock yields needle coke, the most anisotropic form of delayed coke.
A highly asphaltenic coker feedstock produces shot coke. In between are other heavy
hydrocarbons, which in the proper proportion with aromatics and asphaltenes, produce
the sponge cokes suitable for anode grade coke. Shot coke (spherical isotropic particles
that do not lend themselves to traditional anode pitching methods and have a high
coefficient of thermal expansion) is generally not utilized in anode application today.
Green shot cokes are predominately found in North America where heavy crudes from
Canada, Mexico, and Venezuela influence its production. As these crudes become more
globally distributed, the shot coke production may grow
Crude quality entering refineries continues to deteriorate as heavier, higher sulfur crudes
are more available and less costly than lower sulfur, lighter crudes. Chart 3 shows the
long-term trend of sulfur content of crude oil (domestic and imported) into US refineries.
6
The section is a summary of items contained in “Global Trends in Anode Grade Coke Availability and
Quality for the Aluminium Industry,” F. Vogt, R. Tonti, L. Edwards, Proceedings of the 7 th Australasian
Smelting Technology Conference, Melbourne, Australia, November 11-15, 2001, which can be read for a
more detailed review of influences on green coke quality.
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Chart 3. US Refinery Average Crude Oil Sulfur Content
Sulfur Content (%)
1.6
1.4
1.2
1
0.8
0.6
1987
1989
1991
1993
1995
Year
1997
1999
2001
2003
Source: Oil & Gas Journal
As is the case within North America, China will import most of the crude needed for their
expansions in refining capacity. China crude oil imports are expected to grow nearly
fourfold from 2003 to 2030, from 2.8 to 10.9 million barrels per day with much of the
requirement, 4.9 million barrels per day, or 60%, coming from Middle East suppliers.7
Chart 4 shows the relative sulfur content of crudes produced around the world. Chinese
crude has the lowest sulfur content of all the regional crudes shown, but increases in
production of this crude for refining in China will be insignificant relative to the increase
in the demand. Therefore, the sulfur content of coke produced in China will increase as a
result of the use of imported crudes.
While Chinese green cokes are widely expected to increase in sulfur and vanadium
contents, the majority of Chinese green cokes should remain chemically and structurally
suitable for anode grade application.
7
“International Energy Outlook 2006” Energy Information Administration, U.S. Department of Energy
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Chart 4. Regional Breakdown of Sulfur in Oil Supply
Regional Breakdown of Sulfur in Oil Supply
2.5%
Mexico
2.0%
wt% Sulfur in Oil
Middle East
Canada
1.5%
No. America (w Mexico)
FSU
1.0%
Total Worldwide
U.S.A.
So. America
0.5%
China
0.0%
1995
2000
2005
2010
2015
Source: Jacob’s Consultancy
The price difference between low sulfur, lighter crudes and high sulfur, heavier crudes is
referred to as the “spread.” Chart 5 below shows an example of this type of spread. The
so-called “Sweet/Sour Spread” is the price differential between two widely available (to
the US Gulf Coast) benchmark crudes: West Texas Intermediate (WTI), a low sulfur,
lighter crude, and Mexican Mayan, a high sulfur, heavier crude. In recent years the
spread has widened as crude oil prices have increased, providing a powerful incentive for
refiners to maximize the use of heavy crude.
Chart 5. US Gulf Coast Sweet/Sour Spread
SWEET/SOUR SPREAD
Monthly Average
$20.00
$18.00
$16.00
USA $/bbl
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Source: PACE Petroleum Coke Quarterly; Weekly Commodity Prices (WTI-Maya)
Refinery process changes are needed to take advantage of the lower cost high sulfur,
heavier crudes. Among the necessary modifications are desulfurization processes to
7
A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
remove the additional sulfur, delayed coking units (if none exist), and other processes to
upgrade intermediate streams to maximize motor fuel production. Once a refinery is
modified at great capital cost to refine heavy, high sulfur crudes, it is likely that it will
process only such crudes and produce non-anode green coke at the coker.
Managing Future Coke Quality
Given the trends in crude oil as described, increased production of lower quality green
cokes will continue. This means anodes cokes will have:



higher vanadium and nickel levels,
lower average coke bulk densities, and
more isotropic coke structures of higher thermal expansion.
The aluminum industry will continue to experience the long term gradual decline in each
of these categories. Therefore, smelters will need to continue to deal with these changes.
Vanadium has been an undesirable impurity for two reasons: it has a strong catalytic
effect on excess anode consumption and it is also an unwanted contaminant in primary
aluminum. Modern aluminum smelting cell designs are less sensitive to excess carbon
consumption and several new smelter projects have relaxed vanadium specifications for
this reason. Technology is also readily available today to remove vanadium from primary
aluminum. Long term, smelters should consider the effects of higher nickel levels.
Smelters have learned to adapt to coke bulk density changes with improvements in anode
forming technology which allow production of higher density anodes from lower density
cokes. Technology is being developed to allow the use of more isotropic coke structures.
Regional influences will impact green coke quality differently in various parts of the
world. Many smelters have already made investments in additional handling and storage
facilities in order to receive and blend calcined coke from several geographical supplies.
This gives a smelter greater flexibility in optimizing anode performance and the
economics of coke procurement.
Continued relaxation of specifications will be necessary for the calcining industry to
continue incorporating the next best and, desirably, lower cost green cokes into calcined
coke blends.
Costs and Competing Alternatives for Anode Grade Green Coke
The cost of calcined coke has risen significantly, primarily driven by the price and
availability of green coke, which typically accounts for about 70% of the cost of
producing calcined coke. One measure of green anode coke costs for US Gulf Coast
calciners is shown in Chart 6. Over the past three years, the increase in costs have been
associated with the higher values of alternative applications for green coke, higher
transportation costs, and greater demand for high quality green cokes.
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Chart 6. Green Coke Price for US Gulf Coast Calciners
$120
US $ per ton
$110
$100
$90
$80
$70
$60
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
By Quarter 2004 - 2006
Source: Jacob's Consultancy
A development of concern for aluminum producers is the emergence of effective
economic competition for the higher quality green cokes available for anode grade
application. The primary alternative use of green coke is as fuel. The price of green coke
for fuel applications has risen dramatically in the past few years. In the US Gulf, for
example, one measure of the price for fuel grade coke has increased 250% from the
second quarter of 2005 and is shown in Chart 7. It currently remains well above historical
price levels.
Other applications, such as supplementing metallurgical coal used in coke batteries for
steel production or the direct use in the production of silicon carbide, also provide high
value markets for green coke.
By example, consider Brazil, a region where most of the 2.2 millions tpy of green coke
produced is suitable for anode application. By 2011 an additional 1.8 million tpy of green
petroleum coke are forecasted to be produced as compared to 2006.8 Today about
350,000 tpy are calcined within Brazil for anode application, but only a small portion of
the excess is exported for calcining. In Brazil, the competing applications for fuel or for
steel production make this coke very uneconomic for off-shore calciners. Other factors,
including a lack of infrastructure and high freight costs (see the section below)
complicate the exportation of this coke.
8
Printed communication from Petrobras.
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Chart 7. High Sulfur Green Coke Price, US Gulf Coast (Above 50 HGI)
$60
US $ per ton
$50
$40
$30
$20
$10
$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Jacob's Consultancy
Freight Costs
Increasing freight costs have become a primary factor in determining the flow of green
cokes around the world and have had a significant impact on the costs of green coke at
calciners. Most of the petroleum green coke ocean-shipped to calciners is transported via
Handysize bulk carriers. Chart 8 shows the cost to charter a Handysize Bulk Carrier since
1992.9
The recent higher freight costs have discouraged imports and exports of green coke in
favor of locally sourced materials to the extent they are available. Conversely, as the
delivered cost to off-shore calciners has become too high, excess raw materials suitable
for anode grade application outside of a particular region are now used as fuel
domestically.
Freight costs for fuel coke can affect anode coke values appreciably. Much of the North
American green coke is exported to be used as fuel in other regions. For example, the
domestic cost of this fuel coke (say $50 per ton) plus the freight cost to China (say $40
per ton), in effect, “set” the alternative value of green anode coke that is produced within
China. In late 2006, the value of high sulfur green coke (3 to 6% sulfur) delivered as fuel
to Brazil, Europe, or China ranged between $80 to $100 per ton (lower sulfur green cokes
had even higher values). Destination handling and transportation costs then increase
green coke values even further. Therefore, this high value of imported fuel coke then sets
a floor on the value of anode coke in that region.
9
Galbraith’s Ltd, “Short-term Prospects for Handysize Bulk Carriers”
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Chart 8. Handysize Freight Costs
Source: Galbraith’s Ltd.
The overall bulk trade has grown for the last 46 years and is forecasted to continue to
grow. This is shown in Chart 9 where and it should be noted that most of the Handysize
cargoes lie within the “Other Bulk” category.10 A healthy demand is forecasted for ship
owners, and therefore a case can be made for continued high freight rates.
Chart 9. World Seaborne Dry Bulk Trade
Source: Galbraith’s Ltd.
10
Galbraith’s Ltd, “Short-term Prospects for Handysize Bulk Carriers”
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A Perspective on the Outlook for Calcined Coke
Ron M. Garbarino
Higher green coke values fixed by alternative applications and higher freight costs are
uncontrollable components for calciners. Green coke represents the largest portion of the
cost of producing calcined coke and these costs must pass through to the product value.
Conclusions
The following conclusions are drawn:

There will be sufficient green coke available to provide the aluminum industry the
additional 5.8 million tpy required by 2011 as compared to 2006. Both China and
Brazil figure predominately in new sources of green coke supply.

Coke quality will continue to gradually decline. To cope, smelters should apply
technology to manage the marginal increases in impurity levels.

Today, the cost of green coke is bracketed by the value of alternative applications
not experienced in the past. Energy costs will continue to have a major influence
on green coke costs. Freight costs have risen significantly in recent years and in
many cases will continue to compound the economic competition for green coke.

Historically, when refiners found green coke was significantly more valuable as
anode coke than for their alternatives, calcined coke prices set green coke prices.
Today, with the shortage of high quality green cokes, strong alternative markets
and high freight costs, calcined coke price is now largely determined by green
coke prices.

To minimize costs, smelters should continue to relax specifications appropriately
to give calciners a greater range of flexibility for green coke selection.
12