Low-sulfur coke may become a bottleneck for lithium battery anodes
Thread Content
Petroleum coke is a by-product of petrochemical processing, and its main downstream use is in electrode production. Petcoke is produced from petroleum residue and is a by-product of oil refining; its supply is influenced by the volume of refining activities. Petroleum coke is primarily used to manufacture electrodes. In downstream applications, it is generally classified based on its sulfur content: low-sulfur coke is mainly used to produce graphite electrodes, lithium battery anodes, and high-end pre-baked anodes; medium-sulfur coke is used to produce ordinary pre-baked anodes; while high-sulfur coke is used as fuel and a reducing agent. ➢ The ceiling on electrolytic aluminum production capacity is clear, and the overall demand for petroleum coke is limited. In the downstream applications of petroleum coke, pre-baked anodes and fuels accounted for 58% and 23% respectively in 2021; lithium battery anodes and graphite electrodes, which have greater demand potential in the future, accounted for only 2% and 1% respectively. Given that the production capacity ceiling for electrolytic aluminum at 45.53 million tons is clearly defined, and current production levels are already approaching this ceiling, the future demand for pre-baked anodes is relatively certain. In contrast, graphite electrodes and lithium battery anodes account for a small proportion of total demand, so their impact on overall demand is limited; it is difficult for the demand for petroleum coke to see significant growth. ➢ With stable crude oil quality and the demand for energy savings, it is difficult to see an increase in the supply of low-sulfur coke. China has low sulfur content in its crude oil, making it a major producer of low-sulfur coke. CNPC and CNOOC account for 93% of the country’s low-sulfur coke production capacity. Due to requirements related to energy conservation and reduced consumption, these two companies have installed hydrogenation units, which has led to a decline in the coking rate. In 2021, China’s petroleum coke production was 2.11 million tons, a 45% decrease compared to 2018, and this downward trend continued in 2022 as well. The type of petroleum coke depends on the structure of crude oil. With a stable supply of crude oil in China, and under the backdrop of the \"dual carbon\" goals, it remains difficult for companies such as CNPC and CNOOC to increase their coking rates; as a result, the supply of low-sulfur coke is likely to remain at low levels. Abroad, due to the high sulfur content in crude oil, petroleum coke is mainly of medium to high sulfur content; the production of low-sulfur coke is limited, and there will be little increase in the supply of low-sulfur coke in the future. ➢ There is great potential for demand for lithium anodes, and the growing shortage of low-sulfur coke will intensify competition for resources. From the demand side, 1) the trend toward using shorter-process methods in steel production over longer-process methods is firmly established; the proportion of electric arc furnaces will continue to rise, leading to an increase in demand for graphite electrodes. Although the proportion of electrodes with ordinary power ratings will decline, their absolute volume will still continue to grow ； 2) Low-sulfur coke is primarily used in mid-to-low-end anode materials. With the continued rapid development of new energy vehicles, there will be a focus on both high-end and low-end applications in the future; as a result, the demand for needle coke and low-sulfur coke is likely to grow rapidly together ； Driven by the demand for power peak shaving, the development of power storage systems is accelerating; there is great potential for demand in low-end anode materials, which could further expand the growth opportunities for low-sulfur coke. The demand for low-sulfur coke in its three main application areas will remain strong in the future; there is significant potential for demand as an anode material, while supply growth is limited. Due to high levels of impurities such as sulfur, medium-sulfur coke is difficult to graphitize, which makes it less suitable as a substitute for low-sulfur coke. As a result, the shortage of low-sulfur coke is likely to increase over time, leading to intensified competition for resources. ➢ Investment advice: As the shortage of low-sulfur coke increases, competition for such resources will intensify. In the future, when the supply chain for low-sulfur coke becomes more mature, companies that have advantages in procurement will reap significant benefits. Sotong Development has been active in the petroleum coke industry for 20 years; it boasts a significant advantage in terms of the scale of its petroleum coke purchases. The company also has a high proportion of high-end pre-baked anodes in its product portfolio, and it purchases large quantities of low-sulfur coke. Coupled with its advantages in global procurement, it enjoys strong capacity in ensuring the supply of low-sulfur coke raw materials, which will further enhance its competitive advantages. We continue to recommend this company. ➢ Risk warning: Supply of low-sulfur coke exceeds expectations ； Downstream demand fell short of expectations. Profit forecasts, valuations, and ratings for key companiesCode | Abbreviation | Stock price (RMB) | EPS (RMB) | PE (times) | Rating
2021A | 2022E | 2023E | 2021A | 2022E | 2023E
60361 | Sotong Development | 38.75 | 1.35 | 2.69 | 3.48 | 29 | 14 | 11 | Recommended
Source: Wind; forecasts by Minsheng Securities Research Institute. (Note: The stock price is the closing price as of July 28, 2022; the financial figures do not include data related to Xinyuan Co., Ltd.)
Recommended; Rating maintained.
Analyst: Qiu Zuxue
Professional certificate: S01 00521 1 20001
Email: qiuzuxue@mszq.com
Research assistant: Zhang Yiqing
Professional certificate: S01 001 21 1 20057
Email: zhangyiqing@mszq.com
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In-depth industry research / Non-ferrous metals
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Securities research report
Table of contents
1. Petroleum coke is a byproduct of oil refining; its main downstream use is in electrode production............................................................................................................. 3
2. Limited supply of petroleum coke; high market concentration............................................................................................................................... 5
2.1 Petroleum coke production remains constrained due to limited raw material availability............................................................................................................................. 5
2.2 Most petroleum coke production facilities are located along the coast; market concentration is high................................................................................................................................. 7
3. Clear ceiling on aluminum smelting capacity; demand for petroleum coke remains limited.......................................................................................................... 9
3.1 Aluminum smelting capacity has clear limits; market potential for prebaked anodes is limited....................................................................................................................... 9
3.2 Proportion of electric furnace steel production is rising steadily; demand for graphite electrodes is increasing.............................................................................................................................. 10
4. Growing shortage of low-sulfur petroleum coke; intensified competition for resources............................................................................................................................ 13
4.1 Crude oil quality remains stable; little increase expected in low-sulfur petroleum coke supply.................................................................................................................................. 13
4.2 Rapid growth of lithium-ion battery anodes; strong demand for low-sulfur petroleum coke.......................................................................................................................................... 17
4.3 Shortage of low-sulfur petroleum coke hard to remedy; competition for resources intensifies.......................................................................................................................................... 25
5. Investment recommendations.............................................................................................................................................................. 27
5.1 Industry recommendations: Supply-demand dynamics for petroleum coke will diverge; low-sulfur petroleum coke will become a bottleneck for lithium-ion battery anode production................................................................................ 27
5.2 Sotong Development: A rapidly growing leader in prebaked anode production; well-positioned to benefit from growth in lithium-ion battery anode sector..................................................................................................... 27
List of illustrations.................................................................................................................................................................. 31
List of tables.................................................................................................................................................................. 32
In-depth industry research / Non-ferrous metals
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Securities research report
1. Petroleum coke is a byproduct of oil refining; its main downstream use is in electrode production
Petroleum coke is a byproduct of petroleum refining. The main component of petroleum coke is carbon; it also contains elements such as hydrogen, nitrogen, sulfur, and oxygen. It is produced primarily from petroleum residue and is a by-product of the refining process, so its production cost is essentially negligible. Since it is a by-product, refining companies do not adjust the production volume of refined oil based on the profitability of petroleum coke; supply also does not change in response to fluctuations in petroleum coke prices, but remains consistent with the production volume of refined oil. Classification and applications of petroleum coke. Raw petroleum coke that has not been heat-treated contains high levels of elements such as hydrogen, sulfur, and oxygen. After calcination, the volatile content is significantly reduced, and the sulfur content decreases by 0.2–0.5 percent, resulting in cooked coke, also known as calcined coke. Calcined coke is the primary raw material for petroleum coke used in pre-baked anodes and graphite electrodes. The sulfur content in petroleum coke has a significant impact on its downstream applications; the lower the sulfur content, the higher-end the application areas. Based on their sulfur content, petroleum coke is classified into 1# coke, 2# coke, 3# coke, 4# coke, etc. Figure 1: Schematic diagram of petroleum coke products. Figure 2: Classification of petroleum coke products. Source: Minsheng Securities Research Institute. Petroleum coke is a by-product of oil refining; it is produced from heavy oil obtained after crude oil distillation through coking processes. Currently, petroleum is mainly obtained via delayed coking processes. The coking processes mainly include the following 4 steps: 1) Heating: Vacuum residue enters a feed buffer tank for preheating; the preheated crude oil then goes to the bottom of the distillation tower for heat exchange, after which it is pumped into a heater using hot oil pumps to reach the temperature required for the coking reaction (500°C). Subsequently, it enters the coke tower where the coking reaction takes place. 2) Pyrolysis and condensation: The coking feed enters the coking tower, where pyrolysis and condensation reactions take place, converting residue oil into gas, light oils, and coke respectively. 3) Fractionation: The oil and gas enter the fractionation tower from the top of the coke tower, where they exchange heat with the feed oil; through fractionation, gas, gasoline, diesel, and wax oil are obtained. The distillation column bottom circulation oil and feedstock (reduced pressure oil) undergo coking reactions further. 4) Coke removal: The coke inside the tower has its light components removed using steam, followed by cooling with water, and finally the coke blocks are removed from the bottom. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report, Figure 3: Production process of petroleum coke via delayed coking. Source: Minsheng Securities Research Institute. Petroleum coke is primarily used to manufacture electrodes, with its end-use industries including aluminum electrolysis, new energy vehicles, and steel manufacturing. Oil contains a relatively high amount of carbon, and it is therefore often used in the production of graphite for use as electrodes. The downstream applications of petroleum coke are generally categorized based on their sulfur content. Main application areas of low-sulfur coke: 1) Ordinary graphite electrodes, which are used in electric furnaces for short-process steel production ； 2) Mid-to-low-end lithium battery anodes, whose end uses are new energy vehicles and energy storage. For lithium battery anodes and graphite electrodes, low-sulfur coke can only be used; this is mainly because both types require graphitization, and the sulfur content in petroleum coke escapes rapidly during this process, resulting in irreversible volume expansion and the occurrence of a \"bulging phenomenon\". 3) High-end pre-baked anodes: Since overseas standards for pre-baked anodes require that the sulfur content in the products be no more than 2.4%, low-sulfur coke is needed for their production; these anodes are mainly used for export. Ordinary pre-baked anodes are also produced by mixing low-sulfur coke, and their end use is the aluminum electrolysis industry ； 4) Other carbon products. Medium-sulfur coke is primarily used in the production of ordinary prebaked anodes domestically. This is mainly because there are no sulfur content requirements specified in China’s standards for prebaked anodes. Given its low cost, medium-sulfur coke is widely used in the production of such anodes. In contrast, high-sulfur coke contains excessive amounts of sulfur; during the production process by aluminum smelters, it leads to high emissions of SO2, causing pollution levels to exceed permissible limits. Additionally, SO2 can corrode equipment and increase the resistivity of anodes. As a result, high-sulfur coke is rarely used in the production of prebaked anodes in China. Nevertheless, some prebaked anode manufacturers do utilize high-sulfur coke by blending it with other materials during production. High-sulfur coke is primarily used as a fuel and a reducing agent. Its uses as a fuel include industries such as glass factories, power plants, and cement plants. As a reducing agent, it is used in the smelting of silicon, for example in the production of calcium carbide and silicon carbide. In-depth Industry Analysis/Non-ferrous Metals: Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities Research Report, Figure 4: Petroleum coke industry chain. Source: Minsheng Securities Research Institute. 2 Limited supply of petroleum coke leads to a high degree of market concentration. 2.1 Due to constraints in raw material supply, the capacity utilization rate for petroleum coke remains low. Production of petroleum coke is increasing steadily, but there may be risks to future supply. Petcoke is a by-product of petroleum refining. With the development of China’s petroleum refining industry, its production has increased steadily, rising from 11.88 million tons in 2009 to 30.3 million tons in 2021, with an average annual growth rate of 8.1%. The future supply of petroleum coke appears bleak. On one hand, with the rise of electric vehicles and the rapid growth of China’s new energy vehicle market, oil consumption is gradually declining. As a result, capital expenditures by traditional oil companies are decreasing, and the slowing growth rate of oil production may impose constraints on the supply of petroleum coke ； On the other hand, the capacity utilization rate of petroleum coke is low, but it is gradually increasing. Petcoke is a by-product of petroleum refining; it does not have its own concept of production capacity, and its output depends largely on the volume of petroleum refining activities. Due to the low coking rate of petroleum coke, a higher proportion of recycled oil is used, which in turn results in a low capacity utilization rate for petroleum coke. As of the end of 2021, China’s petroleum coke production capacity was 138 million tons, with a capacity utilization rate of 21.9%. This figure has been on the rise for four consecutive years. The supply-demand situation is expected to remain tight in the future. The implementation of policies aimed at reducing carbon emissions has led some refining companies to abandon the use of delayed coking units in their new projects in favor of hydrogenation units, which also affects the supply of petroleum coke. The utilization rate is likely to continue rising. In-depth Industry Research / Non-ferrous Metals. Our company is qualified to provide securities investment consulting services. Please be sure to read the disclaimer on the last page. Securities Research Report. Figure 5: China’s petroleum coke production and growth rate from 2009 to 2021 (unit: 10,000 tons). Figure 6: China’s petroleum coke production capacity and utilization rate from 2017 to 2021 (unit: 10,000 tons). Data sources: Wind, Minsheng Securities Research Institute. Data sources: Wind, BCI, Minsheng Securities Research Institute. China imports a large volume of petroleum coke; its dependence on foreign supplies stands at 30%. China’s imports of petroleum coke consist mainly of high-sulfur coke, which is primarily used as fuel or in combination with other materials to produce pre-baked anodes. Exports, on the other hand, involve mainly medium-sulfur coke, which is used by overseas companies for the production of pre-baked anodes. China imports a large quantity of petroleum coke; this figure has been steadily rising in recent years. In 2021, China’s imports of petroleum coke reached 12.74 million tons, a year-on-year increase of 24.0%. The degree of reliance on foreign sources for petroleum coke rose from 14% in 2016 to 30% in 2021. The overall trend of China’s petroleum coke exports has been downward; the volume dropped from 2.4 million tons in 2016 to around 1.8 million tons in the past two years. This is mainly due to low electrolytic aluminum production overseas, as well as an increase in China’s exports of prebaked anodes, which has eroded the market share of foreign prebaked anode manufacturers. In 2021, China exported 1.86 million tons of petroleum coke, a year-on-year increase of 4.4%. Oil coke imports mainly come from major oil-producing regions, while exports are primarily oriented towards electrolytic aluminum. China’s imports of petroleum coke mainly come from major oil-producing countries such as the United States and Saudi Arabia. In 2021, petroleum coke imported from the United States accounted for 46.9% of China’s total imports, while that from Saudi Arabia made up 15.7%. China’s petroleum coke is mainly exported to regions where aluminum electrolysis takes place, for use in the production of prebaked anodes. In 2021, the proportions of exports to India, the UAE, and Australia were 26.8%, 17.4%, and 11.6%, respectively. Figure 7: China’s imports of petroleum coke and their growth rate from 2010 to 2021 (unit: 10,000 tons) Figure 8: China’s exports of petroleum coke and their growth rate from 2009 to 2021 (unit: 10,000 tons) Source: Wind, Minsheng Securities Research Institute Source: Wind, Minsheng Securities Research Institute In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 7 Figure 9: Distribution of sources of China’s petroleum coke imports in 2021 Figure 10: Distribution of China’s petroleum coke exports in 2021 Source: Wind, Minsheng Securities Research Institute Source: Wind, Minsheng Securities Research Institute The competitiveness of enterprises that use petroleum coke in China has increased, leading to a steady rise in the apparent consumption of petroleum coke. With technological advancements, the competitiveness of Chinese enterprises producing prebaked anodes, graphite electrodes, and anode materials—products derived from petroleum coke—has significantly improved. Domestic demand and exports have been on the rise, while production has also increased continuously. Demand for petroleum coke remains strong, and its apparent consumption has been growing steadily. In 2021, China’s apparent consumption of petroleum coke reached 40.18 million tons, a year-on-year increase of 6.6%. Figure 1:1: Apparent consumption and growth rate of petroleum coke in China from 2011 to 2021 (unit: 10,000 tons). Source: Wind, Minsheng Securities Research Institute. 2.2 The production capacity for petroleum coke is mainly concentrated in coastal areas, resulting in a high degree of market concentration. The production capacity for petroleum coke is primarily located in coastal regions such as East China and South China. The regional and corporate distribution of petroleum coke production capacity is consistent with that of petroleum refining, being mainly concentrated in the East China, South China, and Northeast China regions. In 2021, the production shares of Shandong, Liaoning, Guangdong, and Zhejiang were 37.9%, 10.7%, 8.9%, and 7.6% respectively. Since the eastern regions aim to reach their carbon peak earlier, there will be stricter controls on the production capacity of energy-intensive industries in the future; as a result, some of the capacity for oil refining and petroleum coke production may shift to the western regions. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report: Sinopec has a high capacity for petroleum coke production, accounting for 39% of total production in 2021. Sinopec has a large capacity for producing petroleum coke, with most of this production coming from large refineries. Among the top 10 facilities in terms of petroleum coke production capacity, 8 are owned by Sinopec; the other two are owned by CNOOC and Jincheng Petrochemical. In 2021, the petroleum coke production of the three major oil companies accounted for 56% of the total; among them, Sinopec accounted for as much as 39%, giving it significant influence in this industry. Since petroleum coke is a by-product, its sales are usually handled by the respective subsidiaries, and Sinopec is less involved in the petroleum coke market. Figure 1-2: Regional distribution of petroleum coke production in China in 2021. Figure 1-3: Distribution of enterprises producing petroleum coke in China in 2021. Source: BaiChuanYingFu, Minsheng Securities Research Institute. Figure 1-4: Distribution of petroleum coke production capacity in China in 2021. Source: BaiChuanYingFu, Minsheng Securities Research Institute ； Notes: Capacity heat map. Table 1: Distribution of production capacity among the top 10 petroleum coke producers in China in 2021. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report. Company, Project, Capacity (10,000 tons): CNOOC Huizhou Refining & Chemical – 420; Sinopec Tahe Refining & Chemical – 360; Tianjin Petrochemical – 350; Guangzhou Petrochemical – 340; Zhejiang Petrochemical – 320; Zhenhai Refining & Chemical – 310; Qilu Branch – 310; Yangzi Petrochemical – 260; Shanghai Gaqiao Petrochemical – 260; Jincheng Petrochemical, Shandong Branch – 320. Source: BaiChuanYingFu, Minsheng Securities Research Institute. 3. The ceiling on electrolytic aluminum production capacity is clear, limiting the demand for petroleum coke. 3.1 The ceiling on electrolytic aluminum production capacity is clear, resulting in limited market potential for pre-baked anodes. Pre-baked anodes and fuel represent the main areas of demand, so the overall demand for petroleum coke is limited. In our country, petroleum coke is primarily used to produce pre-baked anodes and as fuel. In 2021, these two applications accounted for 58% and 23% of the total demand respectively, while the silicon smelting industry accounted for 5%. Graphite electrodes and lithium battery anode materials accounted for only 2% and 1% of the demand. Looking at the overall demand, the production of pre-baked anodes is limited by the capacity constraints of aluminum electrolysis; silicon smelting is also a energy-intensive industry, so its potential for growth is relatively limited. Lithium battery anode materials and graphite electrodes have greater potential for future demand growth, but since they account for a small proportion of the total demand for petroleum coke, their impact on the overall demand is relatively limited. Thus, the overall demand for petroleum coke has limited prospects. Figure 15: Distribution of downstream demand for petroleum coke in China in 2021. Source: BaiChuan YingFu, Minsheng Securities Research Institute. The production of pre-baked anodes is increasing steadily. Downstream of pre-baked anodes is electrolytic aluminum, and its production volume is consistent with that of electrolytic aluminum. Thanks to lower energy costs and better control over electricity prices, Chinese electrolytic aluminum manufacturers enjoy a significant cost advantage; as a result, the capacity for electrolytic aluminum production is expanding rapidly, and its output is growing steadily. The compound growth rate from 2015 to 2021 was 4.0%, and the growth rate of pre-baked anode production followed a similar pattern. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 10. In 2021, the output of prebaked anodes reached 210.2 million tons, a year-on-year increase of 5.8%. The capacity utilization rate stood at 71.6%, up slightly by 0.7 percentage points. Figure 16: China’s pre-baked anode production capacity and utilization rate from 2017 to 2021 (unit: 10,000 tons). Figure 17: China’s pre-baked anode output and growth rate from 2017 to 2021 (unit: 10,000 tons). Source: BaiChuan YingFu, Minsheng Securities Research Institute. Source: BaiChuan YingFu, Minsheng Securities Research Institute. The production capacity limit for electrolytic aluminum is 45.53 million tons, which determines the upper limit for the demand for pre-baked anodes. According to Aladdin’s statistics, the Ministry of Industry and Information Technology has set a compliant production capacity for electrolytic aluminum at 45.53 million tons. As of the end of May 2022, the total production capacity for electrolytic aluminum was 43.85 million tons, leaving a capacity ceiling of 1.68 million tons – meaning that capacity constraints are becoming increasingly apparent in this industry. In 2021, the production of electrolytic aluminum was 38.98 million tons, representing a 4.7% increase compared to the previous year; the capacity utilization rate was 91.3%. The production level in 2021 was 6.54 million tons short of the theoretical maximum capacity. Assuming a 100% capacity utilization rate for electrolytic aluminum production, the demand for pre-baked anodes would be around 3.27 million tons. Figure 18: China’s electrolytic aluminum production capacity and utilization rate from 2016 to 2021 (unit: 10,000 tons) Figure 19: China’s electrolytic aluminum production volume and growth rate from 2016 to 2021 (unit: 10,000 tons) Source: Wind, Minsheng Securities Research Institute Source: Wind, Minsheng Securities Research Institute 3.2 The proportion of electric arc furnace steel is on the rise, leading to an increase in demand for graphite electrodes 3.2.1 The steel industry is the main consumer sector for graphite electrodes; it accounts for 50% of graphite electrode consumption. Graphite electrodes are important high-temperature conductive materials used in electric arc furnaces for steel production. Electrical energy is supplied to the furnace through these graphite electrodes, and the high temperature generated by the arc formed between the electrode tips and the furnace charge is used as a heat source to melt the charge and carry out steelmaking. Graphite electrodes are also commonly used as conductive materials in other electrical smelting or electrolysis equipment. In-depth industry research/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 11. Downstream of graphite electrodes are industries such as steel, metallurgical silicon, yellow phosphorus, and calcium carbide; among these, the steel industry accounts for 50% of the demand. Excluding exports, the share of the steel industry rises to 81%, making it the largest consumer of graphite electrodes. Figure 20: In 2020, the steel industry accounted for 50% of graphite electrode consumption. Source: BaiChuan YingFu, Minsheng Securities Research Institute. Driven by an increase in the supply of scrap steel, demand for graphite electrodes in China continues to grow. As the amount of steel waste increases, the supply of scrap steel keeps rising, which in turn boosts the production of electric arc furnace steel and increases the demand for graphite electrodes. In 2021, China’s output of graphite electrodes was 1.01 million tons, a 32% increase on a year-on-year basis; the capacity utilization rate was 59%, up by 10 percentage points compared to 2020. The demand for graphite electrodes was strong in 2021, mainly due to high steel prices and an increase in the amount of scrap steel recycled. China has ample production capacity for graphite electrodes; output mainly depends on the production volume of downstream electric furnace steel. Figure 21: China’s graphite electrode production and growth rate from 2016 to 2021 (unit: 10,000 tons). Figure 22: China’s graphite electrode production capacity and utilization rate from 2016 to 2021 (unit: 10,000 tons). Data sources: Wind, Minsheng Securities Research Institute. In-depth industry research/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report, Page 12. Figure 23: China’s scrap steel recycling volume and growth rate from 2014 to 2021 (unit: 10,000 tons). Figure 24: China’s electric furnace steel production and growth rate from 2013 to 2021 (unit: 10,000 tons). Data sources: BCI, Minsheng Securities Research Institute; World Steel Association, Minsheng Securities Research Institute. 3.2.2 Under the broader context of achieving carbon peak and carbon neutrality goals, the proportion of electric furnace steelmaking is showing a trend of gradual increase. The development of electric furnace steelmaking in China has been slow; in 2020, its share accounted for less than 10%. China is the world’s largest steel producer; in 2021, its share of global crude steel production reached 53.0%. Due to issues such as variable quality in the recycling of scrap metal and less competitive electricity costs, electric arc furnace steelmaking in China is still in its early stages of development, and its proportion is significantly lower than that in developed countries abroad. According to statistics from the World Steel Association, in 2020 electric arc furnace steel accounted for only 9.2% in China, far below the global average of around 26%. Figure 25: Share of electric arc furnace steel production in the world from 2013 to 2020. Source: BaiChuan YingFu, Minsheng Securities Research Institute. Policies encourage the development of electric arc furnace steel; by the end of the 14th Five-Year Plan period, its share of total steel production is expected to reach 20%. On December 31, 2020, the Ministry of Industry and Information Technology sought public feedback on the \"Guiding Opinions on Promoting the High-Quality Development of the Steel Industry (Draft for Comment)\“. The draft proposal states that by 2025, the steel industry should essentially develop into a pattern characterized by a rational industrial layout, advanced technology and equipment, outstanding quality and brands, a high level of automation, strong global competitiveness, and green, low-carbon, and sustainable development. The proportion of electric furnace steel production in total crude steel output is expected to rise to over 15%, with an aim of reaching 20%. According to the analysis in \"Comparison of Costs between Electric Furnace Steel and Converter Steel\" by Wang Guojun et al., the consumption of graphite electrodes in electric furnaces is 0.91–4 kg/t. With the increasing proportion of electric arc furnace steelmaking using 100% scrap steel as raw material, the consumption prospects for graphite electrodes remain optimistic. In-depth industry analysis/Non-ferrous metals: Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report: Over the next four years, the compound growth rate of graphite electrodes used in electric arc steelmaking is expected to reach 18.48%. Assuming that the proportion of electric furnace steel reaches 20% in 2025, and that it takes 2.4 kilograms of graphite electrodes to produce one ton of electric furnace steel, it is estimated that the consumption of graphite electrodes in electric furnace steel production in 2025 will increase by nearly 275,000 tons compared to 2021. The compound annual growth rate of the demand for graphite electrodes in electric furnace steelmaking during the period from 2021 to 2025 is expected to be 18.48%. Table 2: Calculation of Graphite Electrode Consumption in Electric Arc Furnace Steelmaking
Year Crude Steel Production (100 million tons) Electric Arc Furnace Steel Production (100 million tons) Share of Electric Arc Furnace Steel (%) Consumption per Ton of Steel of Graphite Electrodes (kg/ton) Total Graphite Electrode Consumption (10,000 tons)
2020 1 0.65 1.01 9.49% 2.4 24.25
2021E 1 0.33 1.1 8.1% 2.4 28.32
2022E 1 0.64 1.44 13.50% 2.4 34.47
2023E 1 0.96 1.75 16.00% 2.4 42.07
2024E 1 1.29 2.03 18.00% 2.4 48.75
2025E 1 1.62 2.32 20.00% 2.4 55.80
Source: Wind, Xinluo Information, and calculations by Minsheng Securities Research Institute
4. The shortage of low-sulfur coke is worsening, leading to intensified competition for resources.
4.1 The quality structure of crude oil remains stable, with little increase in the supply of low-sulfur coke.
4.1.1 The production of low-sulfur coke is gradually declining and is expected to remain at low levels in the future. In China, crude oil is mainly low-sulfur in nature; its production is relatively stable, while the country’s reliance on imports continues to rise. The sulfur content of petroleum coke primarily depends on the raw materials; the coking process has little impact on its sulfur level. The quality of crude oil is related to its source – crude oil in China is low-sulfur, which makes it easier to produce low-sulfur coke, whereas major oil-producing countries such as those in the Middle East and Russia have higher sulfur contents. Due to the relatively limited crude oil resources in our country, crude oil production has remained relatively stable, staying at around 200 million tons. Meanwhile, imports of crude oil have continued to increase, raising China’s dependence on foreign crude oil from 48.4% in 2008 to 72.1% in 2021. Imported crude oil is mainly high-sulfur, leaving limited potential for the production of low-sulfur coke. China’s crude oil imports mainly come from the Middle East and Russia. Among China’s main crude oil suppliers, only Angola and the UAE have low sulfur content in their crude oil, while Saudi Arabia and Iraq have high sulfur content. Based on the sulfur content distribution, in 2021, crude oil with low sulfur content accounted for approximately 18%, while crude oil with high sulfur content made up 49%. Moreover, Iranian crude oil—a potential source of supply—also falls into the high-sulfur category. In the future, although crude oil imports are expected to rise further, the market share for low-sulfur crude oil will remain relatively limited. This share may even be further reduced as imports of Iranian crude oil increase. China’s supply of low-sulfur coke largely depends on the domestic refining of crude oil. Given the stable domestic crude oil production, there is relatively limited room for increasing low-sulfur coke output. In-depth Industry Analysis/Non-ferrous Metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities Research Report. Figure 26: China’s crude oil production and external dependence from 2008 to 2021 (by type, in 10,000 tons). Figure 27: Distribution of China’s crude oil import sources in 2021. Sources: Wind, Minsheng Securities Research Institute. Table 3: Quality of crude oil from China’s main import sources in 2021. Oil type, Country of origin, Density at 20°C (kg/m³), API grade, Sulfur content, Crude oil category: Saudi Medium crude, Saudi Arabia – 875.3, 29.41, 2.63%; High-sulfur medium intermediate base, Saudi Light crude, Saudi Arabia – 866, 31.1, 2.03%; High-sulfur medium intermediate base, Cabinda, Angola – 864.5, 31.39, 0.1, 3%; Low-sulfur medium paraffinic, Iranian Heavy crude, Iran – 883.9, 27.85, 2.1, 5%; High-sulfur medium intermediate base, Iranian Light crude, Iran – 859.4, 32.35, 1.49%; Sulfur-containing medium intermediate base, Iranian Sirri, Iran – 859.5, 32.33, 2.08%; High-sulfur medium intermediate base, Ural, Russia – 864.5, 31.39, 1.38%; Sulfur-containing medium intermediate base, Oman, Oman – 860.6, 32.1, 1.03%; Sulfur-containing medium paraffinic, Basra, Iraq – 885.4, 27.58, 3.1, 0%; High-sulfur medium intermediate base, Dahin, Sudan – 904.5, 24.5, 0.1, 1%; Low-sulfur heavy paraffinic, Mesa, Venezuela – 872.9, 29.85, 1.06%; Sulfur-containing medium paraffinic, Kuwait, Kuwait – 873.2, 29.79, 2.68%; High-sulfur medium intermediate base, Muban, UAE – 828.2, 38.5, 0.74%; Sulfur-containing light oil. Sources: Zhuochuang Information, Minsheng Securities Research Institute. Figure 28: Distribution of China’s imported crude oil in 2021 (by sulfur content). Sources: Wind, Minsheng Securities Research Institute ； Note: Crude oil is classified as low-sulfur, medium-sulfur, and high-sulfur based on sulfur contents of less than 1%, 1%-2%, and over 2% respectively. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 15: Regulation of sulfur content at different stages in the petroleum coke production process. 1) Petroleum refining. The sulfur content in petroleum coke can be reduced by controlling sulfur levels during petroleum refining, thereby lowering the sulfur content in residue. However, since refining is primarily aimed at producing oil and gas, it is difficult for companies to modify their processes in order to obtain residue with low sulfur content. Thus, although it is theoretically possible to reduce the sulfur content in residue, it is challenging for companies to do so in practice ； 2) Coking process. Currently, the delayed coking process, which requires low investment, can handle a wide range of feedstocks, and features mature technology, is widely used in the market; however, it is difficult to reduce the sulfur content in petroleum coke using coking processes. Laboratories primarily use methods such as hydrotreating in fluidized beds to reduce sulfur content. On one hand, the investment required for hydrotreating equipment is substantial, and the price of hydrogen is relatively high, resulting in poor economic efficiency. On the other hand, after hydrotreating, the yields of diesel, gasoline, and hydrocarbons increase, while the recovery rate of petroleum coke decreases significantly, leading to a drop in overall production. Therefore, large-scale implementation of this process also presents certain difficulties. 3) Desulfurization of petroleum coke: Desulfurization can also be carried out after petroleum coke is produced. The main methods include high-temperature calcination desulfurization, hydrodesulfurization, and solvent extraction desulfurization. High-temperature desulfurization has a relatively low cost, which is why it is widely used by enterprises. For this method, petroleum coke needs to be heated to over 1,400°C in order to achieve a significant desulfurization effect; heating it to 1,700–2,300°C is required to produce petroleum coke with a sulfur content of less than 0.1%. High-temperature desulfurization for producing low-sulfur coke demands materials that can withstand high temperatures. Moreover, the production of low-sulfur coke is costly. Additionally, after high-temperature calcination, the density, porosity, and reactivity of petroleum coke decrease, which may affect the quality of the anode materials produced through subsequent graphitization processes. The production volume and share of low-sulfur coke in our country continue to decline. The main types of petroleum coke produced in China are Type 3 and Type 4 coke. In 2021, the output of low-sulfur Type 1 coke reached 2.11 million tons, a year-on-year decrease of 29.4%. This accounted for only 7.7% of the total petroleum coke production, marking a decline of 3.5 percentage points compared to 2020. In the first half of 2022, against the backdrop of a sharp rise in the prices of low-sulfur coke, China’s production of low-sulfur coke amounted to 1.034 million tons, a 5.1% decline year-on-year; its share in the total market volume was 7.5%, indicating further declines in both production levels and market share. Due to minimal changes in the crude oil supply structure, there is limited room for growth in the supply of low-sulfur coke in the future. Figure 29: Distribution of production volumes of petroleum coke with different sulfur contents in China from 2018 to 2022H1. Figure 30: Production volume and growth rate of No. 1 petroleum coke in China from 2018 to 2022H1 (unit: 10,000 tons). Source: BaiChuan YingFu, Minsheng Securities Research Institute. Source: BaiChuan YingFu, Minsheng Securities Research Institute. By the end of 2021, the production capacity of low-sulfur coke was 16.55 million tons, with CNPC and CNOOC accounting for 48% and 45% of this capacity respectively. Since petroleum coke depends primarily on raw materials, and CNPC and CNOOC control almost all of China’s crude oil production, with the three major oil companies also importing large amounts of crude oil, CNPC and CNOOC have relatively stable supplies of raw materials. China has multiple sources for crude oil imports and a wide variety of petroleum products; as a result, the supply of raw materials for local refineries is unstable, and the types of by-product petroleum coke also vary. Domestically, environmentally friendly crude oil has a better quality, which is why the capacity for producing low-sulfur coke is mainly concentrated among CNPC and CNOOC. In 2021, these two companies together accounted for 93% of the total capacity for producing low-sulfur coke, indicating a highly concentrated market for this product. Under the dual-carbon policy, the supply of low-sulfur coke is likely to continue to decline. Under the dual-carbon policy, domestic requirements for energy conservation and consumption reduction are becoming stricter, with state-owned enterprises bearing the brunt of these demands. Over the past few years, PetroChina and CNOOC have started to install hydrogenation facilities, which enable some coke products to be converted back into oil and gas; as a result, the coke production rate has declined. Therefore, the capacity for producing low-sulfur coke remains unchanged, but the output of low-sulfur coke continues to drop. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 1 6 Decline. The pressure from dual-carbon policies remains unchanged, and central state-owned enterprises are still required to reduce energy consumption. It is also difficult for CNPC and CNOOC to modify their hydrogenation units or restart coker units in order to take advantage of the high profits associated with low-sulfur coke as a by-product. Table 4: Distribution of China’s major low-sulfur coke production capacity in 2021
Region | Company | Project | Type of petroleum coke | Production capacity (10,000 tons) | Main components
Tianjin | CNPC Dagang Petrochemical | 1#A | 1 | 30 | Sulfur: 32; >73%; <62%; <5%
Source: “Application Research on the Blending Process of Petroleum Coke for Prebaked Anodes in Aluminum Production”, Minsheng Securities Research Institute
Table 6: International requirements for prebaked anode products
Apparent density (g/cm³) | True density (g/cm³) | Compressive strength (Mpa) | CO2 reactivity (residual electrode rate) | Resistivity (uΩm) | Air permeability (npm) | Ash content (%) | Thermal conductivity (W/mK) | Air reactivity (residual electrode rate) | Sulfur content (%)
Range | 1.55–1.58 | 2.05–2.08 | 35–45 | 84%–92% | 52–60 | 0.5–2.0 | 0.3–0.5 | 3.5–4.5 | 75%–85% | 1.2–2.4
Source: “Application Research on the Blending Process of Petroleum Coke for Prebaked Anodes in Aluminum Production”, Minsheng Securities Research Institute
Exports of prebaked anodes have seen significant growth. Due to high energy prices abroad and a high sulfur content, while the supply of medium- and low-sulfur coke in China is abundant, the advantage in raw material costs becomes evident. As a result, exports of pre-baked anodes continue to rise; in 2021, China’s export volume of pre-baked anodes was 1.91 million tons, representing a 20.1% increase compared to the previous year, and a 70.2% increase compared to 2019, showing substantial growth for two consecutive years. Figure 37: Export volume and growth rate of pre-baked anodes in China from 2015 to 2021 (unit: 10,000 tons). Source: BaiChuan YingFu, Minsheng Securities Research Institute. 4.2.3 Rapid growth of anode materials; energy storage further expands the growth prospects for low-sulfur coke. Granulation and graphitization are key processes in the production of artificial anode materials. Artificial negative electrodes are produced by crushing, granulating, graphitizing, and screening raw materials and binders. The main processes involved are crushing, granulation, graphitization, and screening; these four processes are further divided into more than a dozen sub-steps. The general workflow remains similar, but the specific manufacturing processes may vary depending on each company and the grade of the artificial negative electrode being produced. Among the four main processes in the production of synthetic graphite, crushing and screening are relatively simple; it is the granulation and graphitization steps that primarily determine the technical barriers in this industry as well as the production standards of enterprises. High-end synthetic graphite involves additional processes such as secondary granulation, carbon coating, secondary coating, and doping modification. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report, Figure 38: Production process of lithium battery anode materials. Source: Minsheng Securities Research Institute. The choice between low-sulfur coke and petroleum coke affects the specific capacity and cycle life of the anode materials. The raw materials for artificial anodes mainly include needle coke (oil-based needle coke, coal-based needle coke) and low-sulfur coke. Generally, needle coke is used as the raw material for anodes with high specific capacity, while cheaper petroleum coke is used for anodes with normal specific capacity. The choice of raw materials has a significant impact on the performance of artificial anodes, affecting factors such as their specific capacity, cycle life, rate capability, and compact density. Low-sulfur coke has a complex composition and is suitable for mid-to-low-end anode materials with long cycle lengths and low capacity. Artificial anode materials are primarily composed of carbon. Low-sulfur coke has a complex composition, with high levels of ash and impurities, which results in a poor microcrystalline structure and makes graphitization difficult. In contrast, needle coke contains fewer impurities and its microcrystals are arranged in a more orderly manner; therefore, it is suitable for lithium batteries that require fast charging and high energy density. Low-sulfur coke is better suited for applications that involve long cycling cycles and where high energy density is not a critical requirement. To produce high-quality materials from low-sulfur coke, it is necessary to remove volatile components under high-temperature nitrogen atmosphere, which imposes strict process requirements and increases production costs. Negative electrode manufacturers generally mix low-sulfur coke with needle coke in their production, with a higher proportion of needle coke used for higher-end products. Medium-sulfur coke contains higher levels of impurities such as sulfur and volatiles. Its elevated sulfur content makes it more prone to “gas swelling” during the graphitization process, resulting in the formation of pores. It is also difficult for this type of coke to crystallize and undergo graphitization; therefore, it is rather challenging to produce qualified anode materials for lithium-ion batteries from medium-sulfur coke. Table 7: Composition of major components in petroleum coke and needle coke
Category: Carbon, Hydrogen, Oxygen, Nitrogen, Sulfur
Low-sulfur coke: 89.77%, 4.20%, 3.38%, 2.90%, 0.75%
Needle coke: 98.45%, 0.10%, 0.70%, 0.35%, 0.40%
Source: “Study on the Electrochemical Properties of Low-Sulfur Petroleum Coke as an Anode Material for Lithium-Ion Batteries”, Minsheng Securities Research Institute
Table 8: Performance differences between needle coke and low-sulfur coke
Needle coke vs. Low-sulfur coke
Component differences: Higher carbon content, lower levels of sulfur, oxygen, nitrogen, and ash; easier to graphitize.
Impurities are present in higher amounts, which hinders graphitization; nitrogen and sulfur can cause “bubbling” during graphitization, leading to pores. High ash content interferes with the crystal structure.
Microcrystalline structure differences: Smaller interlayer distances and a certain degree of ordered microcrystalline arrangement, facilitating graphitization. Larger interlayer distances and disordered arrangement, making graphitization difficult.
Anode performance: Lower capacity and initial coulombic efficiency, as well as unstable charge/discharge voltage levels.
Applications: High-capacity, high-rate mid-to-high-end batteries; long-lasting, low-cost low-end batteries.
Source: “Study on the Electrochemical Properties of Low-Sulfur Petroleum Coke as an Anode Material for Lithium-Ion Batteries”, Minsheng Securities Research Institute
In-depth industry research/Non-ferrous metals
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Securities research report 21: The lithium-ion battery anode material market is experiencing rapid development, with significant increases in production. The production of lithium battery anode materials requires a mixture of low-sulfur coke and needle coke; for battery anode materials with high energy density and high discharge rates, a higher proportion of needle coke is used, while for mid-to-low-end battery anode materials that can undergo many charge-discharge cycles, a higher proportion of low-sulfur coke is utilized. Since 2020, the new energy vehicle market has experienced rapid growth, which has led to a sharp increase in the demand for lithium battery anode materials. In 2021, China’s production of lithium battery anode materials reached 720,000 tons, representing a year-on-year increase of 97.3%. The new energy vehicle and energy storage markets continue to grow rapidly, with strong demand for lithium battery anode materials. Demand for low-end anode materials is strong, and the price gap between needle coke and low-sulfur coke is narrowing. Since 2021, low-end vehicles in the A00 category such as the Wuling Hongguang Mini have seen strong sales, leading to a shortage of low-sulfur coke and a significant rise in its prices. The price increase for needle-shaped coke has been more moderate; on the one hand, energy consumption controls have reduced steel production, resulting in weak demand for graphite electrodes, and on the other hand, the growth rate of high-end anode materials is lower than that of low-end ones. The prices of needle coke and low-sulfur coke rose from 5,500 yuan/ton and 2,550 yuan/ton at the beginning of 2021 to 11,000 yuan/ton and 7,400 yuan/ton by July 2022, representing increases of 100% and 191%, respectively. In the future, it is expected that the new energy vehicle market will develop along both high-end and low-end paths, with demand for low-sulfur coke and needle coke continuing to grow at a rapid pace. Figure 39: Production volume and growth rate of lithium battery anode materials in China from 2016 to 2021 (unit: 10,000 tons). Figure 40: Prices of needle coke and low-sulfur coke in China (unit: yuan/ton). Sources: GGII, Minsheng Securities Research Institute. Sources: Wind, Mysteel, Minsheng Securities Research Institute. With a significant increase in energy storage installations, the demand for low-sulfur coke further increases. The installation capacity of new energy sources such as photovoltaic and wind power has increased significantly. Due to the intermittent and seasonal nature of power generation from these sources, there is a growing demand for peak-shaving capabilities on the power supply side. Meanwhile, the rapid development of distributed power generation has further increased the demand for battery storage systems. In 2021, China’s new installation capacity for battery storage was approximately 19.9 GWh, representing a substantial increase of 86.1% compared to the previous year. With the rapid expansion of industrial and commercial applications as well as household distributed power generation, the battery energy storage market is entering a period of rapid growth, and the installation volume of batteries is expected to continue rising at a fast pace. Since energy storage systems are sensitive to battery prices, require a high number of charge-discharge cycles, and have modest requirements regarding energy density, the anode materials used in energy storage lithium batteries tend to be of mid-to-low quality. This makes low-sulfur coke an appropriate raw material, thereby opening up opportunities in the field of energy storage using low-sulfur coke. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report, Figure 41: Installed capacity and growth rate of battery energy storage in China from 2016 to 2021 (MWh). Source: CNESA, Minsheng Securities Research Institute. Petroleum coke is primarily used as a raw material, for resistive applications, and as an insulating material. Petroleum coke can be applied in three areas as anode materials; one of them is as a raw material for lithium battery anodes, namely the low-sulfur coke mentioned earlier ； Another type is graphitized petroleum coke. When petroleum coke is exposed to high temperatures of around 3000 ℃, its amorphous, disordered carbon crystal structure transforms into a hexagonal layered structure. The graphitized petroleum coke can be used as a resistive material, with a consumption of approximately 0.04 tons per ton of negative electrode ； The third type is post-forging petroleum coke, which is petroleum coke that has been calcined at 1,400°C; its volatile matter, ash content, and moisture levels are significantly reduced. It can be used as an insulating material, with a consumption of about 0.66 tons per ton of anode. Based on the tracked raw material composition of planned anode projects, the proportions of petroleum coke and needle coke used are similar; both high-end and low-end routes for anode materials are being pursued. Based on some environmental impact assessment reports we have analyzed, the planned production capacity for lithium battery anodes is 486,000 tons, for natural graphite it is 38,000 tons, for low-sulfur coke as a raw material it is 228,000 tons, and for acicular coke as a raw material it is 220,000 tons. According to the plans, the production capacities of enterprises using low-sulfur coke and acicular coke are roughly equal; there is no clear advantage in terms of substitution between these two approaches for producing lithium battery anodes. Table 9: Distribution of raw materials and auxiliary materials for some planned projects related to anode materials in China (unit: 10,000 tons)
Company | Region | Product | Production Capacity | Petroleum coke | Needle coke | Calcined petroleum coke | Insulating material | Petroleum asphalt | Spherical graphite | Date of EIA report
---|---|---|---|---|---|---|---|---|---|---
BTR | Huizhou, Guangdong | Integrated anode material production | 2 | 1 | 0.75 | 0.52 | 2.1 | 2 | February 2020
Henan Zhongtan | Jiaozuo, Henan | Integrated anode material production | 1 | 0 | 1 | 2.1 | 2 | 1.35 | June 2020
Anhui Huike | Huaibei, Anhui | Integrated anode material production | 2 | 2.48 | 0.087 | September 2020
Yide New Materials | Turpan, Xinjiang | Integrated anode material production | 3 | 4 | 0.03 | February 2021
BTR | Yibin, Sichuan | Anode materials | 3 | 1.98 | September 2021
BTR | Huizhou, Guangdong | Lithium-ion battery anode materials | 5.6 | 3.49 | 0.96 | 1.42 | 4.85 | November 2021
Putailai | Popan City, Xinjiang | Integrated anode material production | 1 | 0+ | 1 | 0 | 48.0 | 14.9 | 2.5 | 1.0 | December 2021
Kaijin New Energy | Yancheng, Jiangsu | Integrated anode material production | 6 | 1 | 0 | 1 | 0 | April 2022
**Total** | **51.6** | **67.2** | **29.5** | **15.4** | **4.4** | **7.0**
Source: Project EIA reports; Minsheng Securities Research Institute. Industry in-depth research / Non-ferrous metals.
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Securities research report: The demand for lithium-ion battery anodes is being driven by the energy storage and new energy vehicle industries; it is anticipated that the demand for low-sulfur coke will reach 1.47 million tons by 2025. The demand for lithium battery anodes is approximately 13,000 tons per GW. With the rapid development of the new energy vehicle and energy storage markets, there is strong demand for lithium battery anode materials, and the demand for low-sulfur coke is also on the rise. We expect that by 2025, the demand for low-sulfur coke in the production of lithium battery anode materials will reach 1.47 million tons, representing a 327% increase compared to 2021. The promising prospects for demand for anode materials have driven lithium battery anode manufacturers to rapidly expand their production capacity, attracting new competitors as well. As a result, the industry’s production capacity has increased significantly. According to Mysteel, the planned production capacity of lithium battery anode manufacturers currently stands at 6.386 million tons, with continued rapid expansion in production capacity. There will still be strong demand for acicular coke and low-sulfur coke in the future, but the lithium battery anode industry may face a situation of overcapacity. The supply bottleneck for lithium battery anode materials is likely to shift from graphitization to upstream sources such as acicular coke and petroleum coke. Table 10: Forecast of demand for low-sulfur coke in lithium battery anodes (in 10,000 tons) 2021 2022E 2023E 2024E 2025E Anode consumption per GWh – 10,000 tons/GWh: 0.1 3 0.1 3 0.1 3 0.1 3 0.1 3 Anode recycling rate: 90% 90% 90% 90% 90% Domestic demand – 10,000 tons: 38.3 67.3 90.2 120.0 161.1 Global demand – 10,000 tons: 69.6 109.3 156.9 227.8 311.9 Proportion of synthetic graphite: 84% 82% 82% 82% 82% Domestic demand for graphitization – 10,000 tons: 52.0 79.7 114.4 166.0 227.3 Proportion of low-sulfur coke as raw material: 42% 42% 42% 42% 42% Demand for low-sulfur coke – 10,000 tons: 34.4 51.5 73.9 107.3 146.9 Source: BaiChuan YingFu, Minsheng Securities Research Institute Table 11: Summary of lithium battery anode material project plans for 2022 Manufacturing company Product Province of the project Planned production capacity Status of projects starting in 2022 Sichuan (Meishan) Shanshan New Materials Anode materials Sichuan 20 On January 4, construction began on a 200,000-ton lithium battery anode material production facility in Meishan. Hunan Juanxuan New Materials Technology – anode materials, Hunan. On January 6, a project to produce 50,000 tons of anode materials per year was signed in Anxiang County, with a total investment of 800 million yuan. Phase 1 of the project began production with 20,000 tons. Shanxi Jueneng Technology, anode materials, Shanxi. On January 1, 2011, Shanxi Jueneng Technology Co., Ltd. began production of 6,000 tons of anodes per year. Hunan Chenyu Fujи New Energy Technology – anode materials. Guangxi: On January 11, 2015, Guangxi Chenzi New Materials Co., Ltd. began production of anode materials at a capacity of 150,000 tons per year; the first phase had a capacity of 50,000 tons, while the second phase would have a capacity of 100,000 tons. Fujian Shanshan Technology, anode materials; Fujian. On January 12, 2015, the second phase of Shanshan’s project to produce 50,000 tons per year of anode materials for power batteries was launched. Sichuan Haichuang Shangwei New Energy Technology – anode materials. Sichuan. On January 14, 2021, a contract was signed for the construction of a facility capable of producing 200,000 tons of anode materials per year; the first phase will have a production capacity of 40,000 tons. Hubei Benxing New Energy Materials – anode materials. Hubei. On January 15, 2020, Benxing New Energy Materials began production of 200,000 tons of anode materials. Ampris (Nanjing) Silicon Anodes, Jiangsu: On January 18, Ampris (Nanjing) Co., Ltd. began production of 20,000 tons of new silicon anode materials. Huiyang (Guizhou) New Energy Materials – Anode materials, Guizhou. On January 22nd, the construction of Huiyang (Guizhou)’s project to produce 100,000 tons of anode materials per year began (with Phase 1 covering 50,000 tons). Anhui Haida New Materials – Anode materials. Anhui. On January 24, Zhongke Electric and Anhui Haida signed an agreement in Wangjiang to build a facility capable of producing 100,000 tons of anode materials per year. Betray (Yunnan) New Energy Technology – anode materials, Yunnan. On January 24, 201, Betray’s project for producing 200,000 tons of anodes per year was established in Dali; the third phase of this project will involve production capacities of 50,000 tons, 50,000 tons, and 100,000 tons respectively. Sichuan Zichen Technology – anode materials, Sichuan. On February 18, 2020, Putailai’s integrated production facility for anode materials with an annual capacity of 200,000 tons began operations. Lanzhou Baohang New Energy Materials – Anode materials. Gansu. On February 18, the environmental impact assessment for Baohang New Energy Materials’ 100,000-ton anode materials production project in Lanzhou was approved. In-depth Industry Analysis/Non-ferrous Metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities Research Report 24: Zhongke Xingcheng Graphite – Anode Materials, Guizhou. On February 20th, Zhongke Electric announced that the first phase of the “100,000-ton annual production capacity for lithium battery anode materials” project in Zhongke Xingcheng, Gui’an New Area, is planned to have a production capacity of 65,000 tons, while the second phase is intended to have a capacity of 35,000 tons. Lushan Goodfu New Energy Technology – Anode materials, Guizhou. On February 24, a contract was signed for the construction of a plant in Anlong County capable of producing 15,000 tons of lithium battery anode materials per year. Guoxuan Zero-Carbon Technology: Anode materials. Inner Mongolia. On February 24th, Guoxuan Zero-Carbon Technology in Inner Mongolia began production of 400,000 tons of anode materials, with the first phase covering 100,000 tons. Yunnan Zhongsheng New Materials – Anode materials. In Yunnan, on February 25th, Yunnan Zhongsheng began operations with a capacity of 100,000 tons; the first phase has a capacity of 30,000 tons. It is planned to complete construction of two production lines by July this year, enabling an annual production of 30,000 tons of anode materials. By 2023, the project will be fully completed and put into operation, producing 100,000 tons of graphite anode materials annually. Anshun Yuanjing New Materials, anode materials, Guizhou. On February 25th, the 100,000-ton lithium-ion battery anode material graphitization project in Puding County commenced construction. Shandong Ruiyang New Energy Technology – Anode materials. On February 25, Shandong Ruiyang New Energy commenced production of 40,000 tons/year of anode materials in Shandong. Dali Chenyu Energy Storage New Materials, anode materials, Yunnan. On February 25th, the construction of Dali Chenyu Energy Storage New Materials’ facility for the production of 100,000 tons of anode materials per year began. Shanxi Huashun New Energy Technology – Anode materials. Shanxi. On February 26, the project for producing 60,000 tons of lithium battery anode materials per year at Shanxi Huashun New Energy Technology was launched. Jiangsu Kaijin New Energy Technology – Anode materials. Jiangsu. On February 28, 2020, the production of lithium battery anode materials by Jiangsu Kaijin began at Binhai Port, with the first phase coming online in June. Qinghai Tianlan New Energy Materials – Anode materials. On March 3, the graphitization production line for lithium-ion battery anode materials operated by Qinghai Tianlan New Energy Materials was put into service. The first phase involves an annual production capacity of 10,000 tons; the second phase will add another 20,000 tons of graphitization capacity and 30,000 tons of anode material production capacity. Fujian Xiangfenghua New Energy Materials – Anode materials. Fujian. On March 2, it was announced that Xiangfenghua’s 30,000-ton production line for high-end graphite anode materials is expected to become operational in January 2023. Yunnan BTR New Energy Materials – Anode materials. On January 24, BTR launched an integrated project in Yunnan for the annual production of 200,000 tons of anode materials for lithium batteries. The first and second phases each have a capacity of 50,000 tons, while the third phase has a capacity of 100,000 tons. Jery New Energy Technology, negative electrode materials – Gansu. On March 4th, Jery’s project to produce 100,000 tons of lithium-ion battery negative electrode materials was successfully launched in Gangu. Shanxi Ruijun New Material Technology – Anode materials. On March 7, the construction of the “70,000-ton integrated project for the production of synthetic graphite anode materials” in Lücheng District commenced. It is expected that 40,000 tons and 30,000 tons will be put into production in 2023 and 2024 respectively. Ningxia Baichuan New Materials – Anode materials, Ningxia. On March 7, the project of Ningxia Baichuan New Materials to produce 5,000 tons of graphite anode materials per year (10,000 tons of graphitization capacity) was put into operation. Shanxi Meishan Lake Technology, negative electrode materials – Shanxi. On March 9th, the production line at Shanxi Meishan Lake Technology Co., Ltd., capable of producing 30,000 tons per year of lithium battery graphite negative electrode materials, is set to go into operation by the end of May. Shanxi Zhongye New Energy Technology – Anode materials, Shanxi. On March 11, the pilot production of the 40,000-ton graphite anode material project (Phase I) by Zhongye Lithium Battery commenced. Ningxia Baofeng Energy Storage Materials – Anode materials. In Ningxia, on March 18th, Baofeng Group began production of 150,000 tons of graphite anode materials. Guangdong Hongyu Group (Lanzhou New Area) – Anode materials. Gansu. On March 20, 2020, Guangdong Hongyu Group signed a contract for a project to produce 200,000 tons of anode materials; the total investment for this project is 5.3 billion yuan. Zhejiang TanYi New Energy – Anode materials. On the afternoon of March 23, in Anhui, a contract was signed for TanYi New Energy’s project to produce 50,000 tons of lithium battery anode materials per year, with a total investment of 1 billion yuan. Neijiu Gusino New Material Technology – Anode materials, Hubei. On March 25, National Technology announced that the project to produce 100,000 tons of anode materials per year will commence. The overall construction period is 5 years; the first phase involves the production of 50,000 tons, with a construction period of approximately 8 months. Shanxi Zhendao New Energy Technology – Anode materials, Shanxi. On March 26, 2010, the graphitization workshop for Shanxi Zhendao New Energy’s project aimed at producing 100,000 tons of lithium battery anode materials per year was completed. On March 28, a cloud-based signing ceremony took place for the project of Shenzhen Tingchuang Enterprise in Guizhou, which aims to produce 30,000 tons of anode materials for lithium-ion batteries per year. The project plans to invest 2 billion yuan, with a construction period of one year. Huiyang (Guxian County, Shanxi) New Energy Materials – Anode materials, Shanxi. On March 30, Huiyang New Energy signed a contract for a project to produce 30,000 tons of anode materials per year. Sichuan Jinhui Neng (Ya’an) for anode materials in Chongqing: On March 31, agreements were signed for a 150,000-ton graphitization project by Sichuan Tianquan Jinya Neng, and a 100,000-ton anode materials project by Chongqing Jinhui Neng. Shandong Lianhua New Materials – anode materials, Shandong. On February 8th, Shandong Lianhua plans to invest in a project for the integrated production of lithium battery anode materials. The project will be built in two phases: the first phase will involve the production of 70,000 tons of anode precursors, while the second phase will focus on the production of 50,000 tons of lithium battery anodes. Operation of this facility is scheduled to begin in 2023. In-depth Industry Analysis/Non-ferrous Metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities Research Report 25: Guangdong Dongdao New Energy Co., Ltd. – Anode Materials. Location: Guangdong. On April 2, 2030, an agreement was signed for the construction of an integrated facility capable of producing 300,000 tons of lithium battery anode materials per year by Dongdao New Energy Co., Ltd. Zhongke Xingcheng Graphite – Anode materials, Hunan. On April 4, the project of Zhongke Xingcheng to produce 50,000 tons of lithium battery anode materials per year is expected to commence trial production in May. Yuzhou Tiandao New Energy Materials – Anode materials. On April 6, 2023, the first phase of Yuzhou Tiandao New Energy’s lithium battery anode material production facility, with an annual output capacity of 30,000 tons, began operations; the total planned annual output for this facility is 200,000 tons. Sotong Development Co., Ltd.: Anode materials, Gansu. On April 7, 2024, the construction of the first phase of Sotong Development’s integrated project aimed at producing 200,000 tons of lithium battery anode materials per year began, with an initial capacity of 50,000 tons. Huizhou Dingyuan New Energy Technology – Silicon-based anodes, Guangdong. On April 8th, the production facility began operations with an annual capacity of 2,500 tons of carbon anode materials that have undergone further processing, and 1,500 tons of silicon-based anode materials. Foshan Griffin New Energy, anode materials. Gansu. On the evening of April 10th, Griffin planned to establish a production facility capable of manufacturing 5,000 tons per year of carbon nanotube powder, 30,000 tons per year of carbon nanotube slurry, as well as 150,000 tons per year of silicon-carbon and graphite anode materials and products derived from graphite processing. Henan Zhongtan New Material Technology specializes in negative electrode materials; it is located in Henan. On April 10th, Longbai Group announced that it would carry out the processing and production of negative electrode materials for Tianmu Xiandao, with an annual output of 3,000 to 10,000 tons. Shida Carbon Group, anode materials, Sichuan. On April 13, 2024, the 40,000-ton/year graphitization upgrade project owned by Zhongzhan Tiaotuan began construction; the total investment in this project is 510 million yuan. In the future, new projects as well as upgrades to graphitization facilities with a capacity of 80,000 tons/year and projects for producing anode materials with a capacity of 50,000 tons/year will be established, resulting in an annual production capacity of 100,000 tons of graphite electrodes and 11,000 tons of specially treated carbon materials produced by isostatic pressing. Yufeng New Materials – Anode materials, Shanxi. On April 13, the pilot production phase for Yufeng’s lithium battery anode material project began. On the morning of April 17th, the construction of the zero-carbon park project in Damao Banner began at Qingdao Haida Negative Electrode Materials in Inner Mongolia. Guangdong Kaijin New Energy Technology Co., Ltd. – Anode materials; Guizhou. On April 18, 2024, the second-phase project of Guangdong Kaijin, aimed at producing 200,000 tons of anode materials per year, began construction. Liyang Tianmu Pioneer Battery Materials Technology – Silicon-based anodes. Jiangsu. On April 20, Tianmu Pioneer announced a total investment of 2 billion yuan for its silicon-based anode project; the investment for the first phase is 1 billion yuan, of which 480 million yuan will be spent on purchasing equipment. Once operational, the facility will be able to produce 50,000 tons per year of new types of nano-silicon anodes. Qingdao Luowei New Materials – anode materials. In Shandong, on April 23, Luowei signed a cooperation agreement; construction is expected to be completed and production to start by the end of 2023. Hebei Kuntian New Energy Co., Ltd.: Anode materials. Yunnan. On April 25, 2020, the construction of Hebei Kuntian New Energy’s 200,000-ton lithium battery anode material production project was launched following the signing of the relevant agreement. The total investment for the project is approximately 5.64 billion yuan, with 1.1 billion yuan invested in phase one and 4.5 billion yuan in phase two. Jinzhou Times New Materials Technology – Anode materials, Liaoning. On April 26, the integrated anode material production project of Jinzhou Times New Materials started construction. Yunnan Shanshan New Materials – Anode materials. Yunnan. On April 26, Shanshan Co., Ltd. announced that it would invest in a project to produce 300,000 tons of lithium battery anode materials per year. The total construction period is expected to be 32 months. The first phase of the project is planned to have an annual production capacity of 200,000 tons, with a construction period of around 16 months; the second phase is planned to have an annual production capacity of 100,000 tons, also with a construction period of 16 months. Zhongjian Xingye (Beijing) Technology Development – Anode materials; Jilin Province. On May 6, Zhongjian Xingye (Beijing) Technology invested a total of 120 million yuan to develop lithium battery anode materials. Sichuan Jinhui Neng New Materials Co., Ltd. – Anode materials; Chongqing. On May 18th, Sichuan Jinhui Neng New Materials plans to invest 1 billion yuan to build a facility capable of producing 100,000 tons per year of lithium battery anode materials. Shenzhen Solideal New Materials Technology – Silicon-based anodes. On May 20th in Xinjiang, Shenzhen Solideal New Materials will invest 1 billion yuan in Dushanzi District to build a production facility for silicon-carbon anodes. Shanghai Qigao New Energy Materials – Anode materials. Yunnan. On May 27th, the construction of Shanghai Qigao New Energy Materials’ integrated project for producing 50,000 tons per year of high-end lithium battery anode materials was launched. Total production capacity: 638.6. Source: Mysteel, Minsheng Securities Research Institute. 4.3 The shortage of low-sulfur coke is difficult to address, leading to intensified competition for resources; the demand for low-sulfur coke exceeds supply, causing prices to rise more rapidly. In terms of the downstream applications of low-sulfur coke, there is rapid growth in the use of lithium battery anode materials, and demand for high-end pre-baked anodes is also strong. The demand for graphite electrodes has declined, but overall demand remains high. Meanwhile, the supply of low-sulfur coke has decreased. In the first half of 2022, China’s production of Grade 1 coke was 1.03 million tons, a 5.1% decrease compared to the previous year. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 26: The gap continued to widen, leading to a significant increase in the price of low-sulfur coke. In June 2022, the average price of Grade 1A coke was 9,000 yuan per ton, while that of Grade 1B coke was 7,018 yuan per ton – an increase of 2,818 yuan per ton and 2,336 yuan per ton respectively compared to January’s averages. Petcoke prices show divergence, with low-sulfur coke remaining strong. Medium-sulfur coke is primarily used in the production of pre-baked anodes, and its demand is tied to the aluminum electrolysis industry. Due to the strong bargaining power of companies in this industry, as well as clear limits on production capacity, demand growth is slow, which has led to a slowdown in the price increase of medium-sulfur coke. In contrast, the supply and demand for low-sulfur coke remain strong, resulting in an increasing price gap between the two types of coke. As of June 2022, the average price difference between 1#B coke and 2#B coke was 1,982 yuan per ton, up by 482 yuan per ton compared to the beginning of the year. It is difficult to see a change in the supply and demand dynamics for low-sulfur coke, while the demand for medium-sulfur coke is limited; therefore, prices are likely to continue to show differences in the future. Figure 42: Prices of petroleum coke with different sulfur contents (unit: yuan/ton) Figure 43: Price differences among petroleum coke products with different sulfur contents (unit: yuan/ton) Source: Wind, Minsheng Securities Research Institute Source: Wind, Minsheng Securities Research Institute Under the \"dual carbon\" policy, the shortage of petroleum coke is likely to continue to increase. If the type of oil imported by our country remains stable, it will be difficult for the supply of low-sulfur coke to increase significantly. On the demand side, in the field of graphite electrodes, the trend toward using shorter steel production processes instead of longer ones is firmly established; the proportion of electric arc furnaces will continue to rise, leading to an increase in demand for graphite electrodes. Although the proportion of electrodes with lower power ratings is decreasing, their absolute volume will still keep growing ； For anode materials, the new energy vehicle industry continues to grow rapidly, with equal emphasis on both high-end and low-end segments. Additionally, as energy storage begins to experience rapid growth, there is significant potential demand for low-end anode materials ； In the high-end prebaked anode sector, with the implementation of China’s dual-carbon policy, the demand for energy conservation and consumption reduction in aluminum electrolysis is on the rise. As a result, prebaked anode standards may be raised, and the trend toward higher-end products is expected to become established ； The three main application areas for low-sulfur coke will see strong demand in the future, while supply growth will be limited; as a result, the gap is likely to widen over time. Table 1-2: Supply and Demand Balance for Low-Sulfur Petroleum Coke (in 10,000 tons) 2021 2022E 2023E 2024E 2025E
Production: 21 1.0 21 1.0 221.6 239.3 263.2
Growth Rate: -29.4% 0% 5% 8% 10%
Net Exports: 1.9 0 0 0 0
Apparent Supply: 209.1 211.0 218.2 229.0 241.0
Actual Consumption: 21.3 22.105 236.73 260.1 287.83
Growth Rate: 3.1% 5.7% 7.1% 9.9% 10.7%
Supply-Demand Balance: 0.8 -1 0.05 -1 5.1 8
-20.83 -24.63
Source: BaiChuan YingFu, research projections by Minsheng Securities Research Institute
In-depth industry analysis/Non-ferrous metals
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Securities research report 27 5 Investment recommendations 5.1 Industry investment advice: There will be a divergence in supply and demand for petroleum coke, with low-sulfur petroleum coke becoming a bottleneck for lithium battery anodes. The capacity limit for aluminum electrolysis is clear, which limits the overall demand for petroleum coke. In the downstream sectors of petroleum coke, prebaked anodes and fuel accounted for 58% and 23%, respectively, in 2021. In contrast, lithium-ion battery anodes and graphite electrodes, which have significant future demand potential, made up only 2% and 1% respectively. Given that the production capacity limit for electrolytic aluminum at 45.53 million tons is clear, and current production levels are already approaching this limit, the future demand for pre-baked anodes is relatively certain. In contrast, graphite electrodes and lithium battery anodes account for a small proportion of total demand, so their impact on overall demand is limited; it is difficult for the demand for petroleum coke to see significant growth. Stable crude oil quality, coupled with requirements for energy savings and reduced consumption, makes it difficult to increase the supply of low-sulfur coke. PetroChina and CNOOC account for 93% of the capacity for producing low-sulfur coke. Due to requirements related to energy conservation and reduced consumption, these two companies have added hydrogenation units, which has led to a decrease in the coke production rate. In 2021, China’s oil coke production was 2.11 million tons, a 45% decline compared to 2018, and this downward trend continued in 2022 as well. The type of petroleum coke depends on the structure of the crude oil. China has a stable supply of crude oil, and under the dual-carbon policy, CNPC and CNOOC face significant pressure to reduce energy consumption; as a result, it remains difficult to increase the coking rate, and the supply of low-sulfur coke is likely to stay at low levels. Due to technical constraints abroad, the production capacity of low-sulfur coke is limited, making it difficult to supplement the domestic supply; thus, there is little increase in the availability of low-sulfur coke. The demand for lithium battery anodes holds great potential, and the widening shortage of low-sulfur coke will intensify competition for resources. On the demand side, 1) the trend of replacing long-process methods with short-process methods in steel production is firmly established; the proportion of electric arc furnaces will continue to rise, leading to an increase in demand for graphite electrodes. Although the proportion of electrodes with ordinary power ratings is declining, their absolute volume will still continue to grow ； 2) Low-sulfur coke is primarily used in mid-to-low-end anode materials. With the continued rapid development of new energy vehicles, there will be a focus on both high-end and low-end applications in the future. The demand for needle coke and low-sulfur coke is likely to grow rapidly alongside each other. Driven by the need for power regulation, the development of energy storage systems is accelerating, and there is significant potential for demand in low-end anode materials, which further expands the growth prospects for low-sulfur coke ； 3) The demand for energy savings and reduced consumption in electrolytic aluminum production is increasing; domestic standards for pre-baked anodes are likely to be raised, and a trend toward higher-end products will also emerge. The demand for low-sulfur coke in its three main application areas will remain strong in the future, while supply growth will be limited. Medium-sulfur coke, due to its higher levels of sulfur and other impurities, is more difficult to graphitize, making it difficult to serve as a substitute for low-sulfur coke. As a result, the shortage of low-sulfur coke is likely to increase gradually, leading to intensified competition over resources. As the shortage of low-sulfur coke continues to widen, competition for low-sulfur coke resources will intensify. In the future, when the low-sulfur coke supply chain becomes more mature, companies with procurement advantages will stand to benefit significantly. 5.2 Sutong Development: A rapidly growing leader in the prebaked anode market; its lithium battery anodes are poised for further growth. The relocation of aluminum production from the north to the south continues, and the company’s market share in the prebaked anode sector keeps rising. Thanks to preferential electricity pricing policies implemented in provinces such as Yunnan, electrolytic aluminum production capacity has begun to shift to the southwestern region. Since 2017, the company has taken advantage of this trend of relocating aluminum production from the north to the south. Leveraging its cost advantages and through joint ventures with electrolytic aluminum producers, it has achieved rapid growth in production capacity and a continuous increase in market share. Regions such as Yunnan have abolished preferential electricity rates, but electricity prices there remain low compared to the national average. Moreover, the advantages of green electricity will become even more apparent in the future. As aluminum production shifts to the south, the company’s market share is set to continue increasing, as long as the capacity for aluminum electrolysis is relocated there. In-depth Industry Research / Non-ferrous Metals. Our company is qualified to provide securities investment consulting services. Please be sure to read the disclaimer on the last page. Securities Research Report. Figure 44: Production of electrolytic aluminum in major provinces where production has shifted from the north to the south from 2012 to 2021 (unit: 10,000 tons). Figure 45: The company’s production volume and market share of prebaked anodes from 2015 to 2021 (unit: 10,000 tons). Data sources: Wind, Minsheng Securities Research Institute. Data sources: BCI, Minsheng Securities Research Institute. We have significant advantages in large-scale procurement and global sourcing of petroleum coke; thus, our ability to ensure a stable supply of raw materials is strong. The company began its operations in the trading of petroleum coke and has been active in this field for over 20 years, boasting a well-developed supply chain network for petroleum coke both domestically and internationally. In 2021, the company’s procurement volume of petroleum coke reached 3 million tons; including purchases through trading activities, the total amount of petroleum coke acquired was over 4 million tons. The national production of petroleum coke was 30.295 million tons, with the company accounting for 9.9% of that volume. When trading-related purchases are taken into account, the company’s share rises to over 13%. As the company’s capacity for pre-baked anodes expands rapidly, its procurement volume of petroleum coke is set to exceed 5.5 million tons, with its share likely to surpass 15%. By leveraging its large-scale purchasing power, the company can take advantage of centralized and global procurement strategies to ensure a stable supply of carbon materials used in aluminum production and as anodes for lithium batteries. The proportion of high-end prebaked anodes is high, and the procurement advantages of low-sulfur coke remain prominent. Leveraging its advantages in international trade, the company’s proportion of prebaked anode exports exceeds the industry average. In 2021, it exported 643,000 tons of prebaked anodes, a year-on-year increase of 11.6%. This accounted for 34% of the total exports in the prebaked anode industry—a figure far higher than the company’s 10% share of overall production. Additionally, the company enjoys a distinct advantage in sourcing low-sulfur coke. Due to the requirements regarding sulfur content in prebaked anodes for overseas use, the prebaked anode products exported from China are primarily manufactured using low-sulfur coke as raw material. Based on a ratio of 1.1 tons of petroleum coke per ton of prebaked anode, the company’s demand for low-sulfur coke in 2021 was approximately 700,000 tons. In addition to purchasing low-sulfur coke for use in producing domestic prebaked anodes, the company’s consumption of this material is much higher than that of companies that produce anode materials. Thus, its advantage in bulk purchasing low-sulfur coke remains significant. Moreover, thanks to its long-term partnerships with petroleum coke producers and its access to global procurement channels, as supply constraints related to anode materials shift from the graphitization process to low-sulfur coke in the future, the company’s advantages in purchasing low-sulfur coke will become increasingly prominent within the anode material industry chain. Figure 46: The company’s procurement volume and proportion of petroleum coke from 2014 to 2021 (unit: 10,000 tons). Figure 47: The company’s export volume and proportion of pre-baked anodes from 2017 to 2021 (unit: 10,000 tons). Sources: Wind, Minsheng Securities Research Institute. Sources: Baichuan Yingfu, Minsheng Securities Research Institute. In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 29: Acquiring Xinyuan Shares to address technical shortcomings and create a second growth driver for the lithium battery business. On April 27, 2022, the company announced the acquisition of Xinyuan Shares. Xinyuan Shares is primarily engaged in the production of lithium battery graphite and capacitors, with its graphite business experiencing rapid growth. At present, the company’s Jiuquan and Xinyuan Shares operations in Inner Mongolia each have an integrated production capacity of 200,000 tons and 100,000 tons for lithium battery anodes respectively. Adding to this, Xinyuan Shares currently has a production capacity of 15,000 tons, so the company’s overall planned production capacity will be 315,000 tons. As the company increases its financial support for Xinyuan Shares, the construction of the 100,000-ton production facility in Inner Mongolia is likely to accelerate. Together with the 50,000-ton production capacity of the company’s Jiuquan facility, the expansion of lithium battery anode production capacity is moving at a rapid pace, and this business segment will soon start contributing profits, becoming a new source of growth for the company. “C+ Strategy: Dual Drivers and Two Wings, Low-Carbon Intelligent Manufacturing. 1) Strengthen the “dual drivers” to consolidate the company’s leading position in pre-baked anodes. The left drive wheel refers to \"pre-baked anodes\"; taking advantage of the shift of aluminum production facilities to the south, the company is actively working to expand its market share. It is estimated that the production capacity for pre-baked anodes will be 2.52/3.12 million tons in 2022/23, with this capacity reaching around 5 million tons by the end of the 14th Five-Year Plan period. An additional 600,000 tons of production capacity is expected to be added each year. 2) The right driving wheel refers to \"crude petroleum coke\"; the company expects to purchase 3 million tons of this material in 2022, accounting for nearly 10% of the country’s total petroleum coke production. By leveraging its large-scale purchasing power, the company ensures a low-cost supply of this raw material. 3) Accelerate the development of the future “two wings” to create a second growth driver for lithium battery anodes. Lewei leverages the advantages of pre-baked anodes to offer \"multiple products + services\" to its downstream customers, helping aluminum electrolysis companies tap into the potential for carbon reduction and energy savings in their electrolysis cells. 4) Leveraging its advantage in petroleum coke as a raw material, the right-wing sector utilizes green energy sources such as photovoltaic power to develop a new platform for carbon materials, with lithium battery anodes as a representative example. The company’s first-phase project in Jiayuguan involves 50,000 tons of lithium battery anode materials, along with a 770MW photovoltaic project; coupled with the 100,000 tons of lithium battery anode materials that are under construction by Xinyuan Co., the company’s business in lithium battery anodes is expanding rapidly. Profit forecasts and investment advice: The production capacity of pre-baked anodes is expanding rapidly, while lithium battery anodes offer new opportunities for growth; as a result, the company’s performance will continue to grow quickly. We have raised our forecasts for the company’s performance, estimating that net profits attributable to the parent company will be 1.241 billion yuan, 1.602 billion yuan, and 1.925 billion yuan respectively for the years 2022–2024. The EPS figures are expected to be 2.69 yuan, 3.48 yuan, and 4.18 yuan respectively. Based on the closing price on July 28th, the P/E ratios are 14 times, 11 times, and 9 times respectively. We maintain a “Recommended” rating for this stock. Risk warnings: Significant increases in raw material prices, capacity expansion falling short of expectations, and downstream demand falling short of expectations. Table 1-3: Profit forecasts and financial indicators for Sotong Development Item/Year 2021A 2022E 2023E 2024E Revenue (million RMB) 9,458 16,366 18,312 23,441 Growth rate (%) 61.7 73.0 11.9 28.0 Net profit attributable to shareholders of the parent company (million RMB) 620 1,241 1,602 1,925 Growth rate (%) 189.6 100.1 29.1 20.1 Earnings per share (RMB) 1.35 2.69 3.48 4.18 PE 29 14 11 9 PB 4.0 3.2 2.6 2.1 Source: Wind, predictions by Minsheng Securities Research Institute ； (Note: The stock price is the closing price as of July 28, 2022; performance figures do not include Xinyuan Shares.) In-depth industry analysis/Non-ferrous metals. Our company is qualified to provide securities investment consulting services; please be sure to read the disclaimer on the last page. Securities research report 30 6 Risk warnings 1) The supply of low-sulfur coke exceeds expectations. The sulfur content of petroleum coke depends on the quality of oil; if there are changes in the domestic oil supply structure and the supply of light crude oil increases significantly, the supply of low-sulfur coke as a by-product will increase, thereby alleviating the shortage in the supply of low-sulfur coke. 2) Demand fell short of expectations. In the downstream sectors of low-sulfur coke, the demand for high-end pre-baked anodes and graphite electrodes remains dominant. If there is a significant reduction in aluminum electrolysis production overseas, leading to a decline in demand for pre-baked anodes, this could result in a decrease in China’s exports of such high-end anodes, thereby affecting the demand for low-sulfur coke.