In this episode, The Petcoke Podcast examines the latest trends for the Russian petroleum coke markets.
Argus deputy editor Erisa Senerdem is joined by Yury Burenko, Trading Director at DYM Resources, to review the year so far for Russian pet coke. They discuss key points affecting trading patterns, from supply and demand fundamentals, the impact of oil price wars on Russian production, the Covid-19 impact on markets and challenges of selling to different regions. Yury shares his thoughts on what to expect into 2021 and how production from the new capacity coming online in Russia and the former Soviet Union countries in the next five years will be accommodated in global markets.
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TranscriptErisa: Hello and welcome to "The Petcoke Podcast." In this series, we'll be speaking with key industry participants to gain their insights into the latest trends for petroleum coke markets around the world. In today's episode, we'll be discussing developments in the Russian petcoke market and the impact that COVID-19 has had in the sector. "The Petcoke Podcast" is brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. My name is Erisa Senerdem. I'm Deputy Editor of the Energy Argus Petroleum Coke Report, and I'm here today with Yury Burenko, who is trading director at Berlin-based DYM Resources. Which is a company specialized in niche oil product sourcing from post-Soviet Union countries with a major focus on Russian products. Hi, Yury, and thank you for accepting our invitation.
Yury: Hello, Erisa. Thanks a lot for inviting me.
Erisa: It's a pleasure really. I'd like to start with the first question. There has been a contrast on supply fundamentals in Russia compared to other producing markets in the first half of 2020. What are the reasons behind this?
Yury: The beginning of this year was very rich in different news. And let me just briefly name a few factors which influenced stable supply from Russian refineries. So, the first reason was global COVID pandemic which decreased demand in motor fuels. Around the world, most of coker units were operating on decreased levels. The second reason was Russia-Saudi Arabia oil price war with collapsing oil prices. So, there was definitely lower demand for crude oil from Russia. The third reason was disputes between Russia and Belorussia, both in economical and political spheres. And the major dispute was on fair prices on crude oil supplies from Russia. So, all of that put some pressure on selling crude oil or on exporting crude oil from Russia.
And for sure, to support somehow Russian oil companies, the government decided to keep stable at least the local demand or local refining. So they decided to do all the maintenance works, not in the spring as they usually did it, but during autumn. So during the first half of this year, all refineries were working, I would not say normally, but at least they were trying to minimize losses and to maximize their outputs. That's why we saw that the supply was very strong from all Russian refineries.
Erisa: Right. Thanks a lot for that comprehensive picturing of what was happening in the first half. And I'd also like to extend it with a follow-up question on what's happening in the second half. Is the supply situation still the same or are those maintenance works gone live and do you see any downside to the supply?
Yury: Yeah. You see Russian refineries got some relief, and as they cannot operate without maintenance, starting from mid of this summer, most of those refineries closed for turnarounds. So, until now, most of them already did all the required works. I'm speaking about Perm, Volgograd, Taneco, Omsk Refinery. So, most, not most, but actually all of the units are back. The turnarounds is over.
Some other factors which I was speaking before are also less hot now. So, Belorussia is, let's say, back on track. Belorussia is, again, a strategic partner for Russia and keeps buying Russian crudes.
So, crude oil prices recovered. Belorussia keeps buying and refining Russian crudes. And this topic is less hot, so refineries can do their maintenance work. And definitely, for the second half of this year, we will see a drop. Not a significant one, but still something which the market will feel. A drop in output just because of those turnarounds which lasted approximately one month for every refinery for every coker unit.
You should keep in mind, [inaudible 0:09:54] factories that we expect that in November-December this year, Komsomolsk Refinery will be back on the market. Finalizing construction or maintenance work at the coker unit, which was shut down since March last year, 2019, because of accident, because of a fire at the coker unit. The coker unit has quite a relatively small capacity, about 200,000 tons per year. But still, this is a very good anode grade quality which is in demand now in the market.
Erisa: Right. And will that also support supply, overall supply?
Yury: Definitely. Definitely. The biggest buyer for that material is for sure local end-user, Rusal[ES1]. Although, some volumes would be available for export. Rusal [ES2]ran a tender a few weeks ago offering for a term supply next year from Komsomolsk, circa 30,000 tons of the bad coke from Komsomolsk.
Erisa: Yeah, thank you, Yury, for that. And how about Russian demand, domestic Russian demand for Russian coke? And we're talking here about mostly anode grade petcoke because that's the major product that Russia has. How was it in the first half and has it changed from July onwards?
Yury: Speaking about local demand, there are two big end-users in Russia which are consuming petcoke. The first is Rusal[ES3], definitely. And the second one is Energoprom, which is producing graphite materials, anodes as well. We were checking Rusal [ES4]breaking results for the first half of this year. It looks like there was no change between the first half of the year in 2020 and 2019 in primary aluminum production. Like zero change.
And it would be very interesting if... So we're eagerly awaiting for the results of the third quarter to see if there was a more long-term effect on the market, on the aluminum market. Because in the first half of this year there was no clear picture on how the pandemics will change demand and will change the market especially. I believe that they were using anodes which were actually produced even last year. So, it was a very short-term perspective to see the changes.
One more thing we should also underline, that local consumers had big stocks by the end of last year, beginning of this year, which also supported them during the pandemics, and which also supported exports. Because refineries offered more volume for export comparing to previous periods.
Erisa: Actually, I was just about to ask about how global demand for Russian coke also fared[ES5]. As we know, prices in China for anode petcoke have been soaring, particularly from the third quarter onwards. And China is Russia's key export market. So, what kind of impact has this had on particularly Russian FOB netback? Has this also forced domestic users to enter into a competition?
Yury: Yes. Definitely, China is the biggest market for Russian petcoke. But increasing prices is a global trend, not only in China or Russia. We see same happening in all other regions. Speaking about China, yeah, price is almost, or in some cases, almost doubled, or in some cases even raised more than twice comparing to beginning of this year or spring this year. It was very interesting what was happening after the lockdown in China. Because like in one or two weeks after lockdown, all of those measures were lifted, price increased like 50% in one week. And yeah, we saw nearly the same here in Europe when the measures also lifted.
But speaking about Russia, back to Russia. So, definitely, that had a direct impact on netbacks for Russian refiners, for Russian producers. The worst situation was in the end of last year, beginning of this year when we saw negative netbacks at the refinery for the petcoke. I'm speaking more about the fuel grade petcoke which is comparable. Price is comparable to coal, which is not expensive.
And you should keep in mind that most of the refineries are located like 2,000 kilometers plus away from the deep seaports. So the logistics, inland logistics is relatively expensive. And that was also a reason why the netback was negative because of the expensive logistics for bringing the petcoke to the port. Now once the prices improved globally and in China as well, we see very strong competition between the buyers, both locally and on export markets.
Erisa: Yeah. Thank you, that's a very interesting perspective to have. And has Russian coke been shipping to other markets besides China? And what are the benefits or challenges of selling to these other markets? And if it hasn't been, what would have to change for Russian coke to sell, for instance, to India or any other large consumer?
Yury: If you are speaking about Russian petcoke of different grades, fuel grade, for example, fuel grade petcoke is traditionally to be exported to the Black Sea and even Baltic Sea basins. In the Black Sea basin, Turkey is one of the biggest buyers for Russian petcoke. And during the last few years, we saw up to 200,000 tons of petcoke of Russian origin petcoke supplied to Turkish market. This year we would possibly reach 100,000.
In the Black Sea basin, there were also shipments this year to Armenia, Moldova. Relatively small compared to Turkey. Although the challenge in the Black Sea is that you cannot form a big shipload. Deep seaports are either full of coal and cannot work with petcoke, or there are some other technological reasons why they cannot accept petcoke for transshipment. So only small ports in the Azov Sea can be used for transshipping petcoke. And this allows to form shiploads up to 4,500-5,000 tons. Which are economically effective in a range of Black Sea supplies or up to Bosphorus, Dardanelles.
But speaking about the Baltics, shipments from the Baltics sure can be formed in bigger shiploads. And last year we saw even to UK, Ireland. I would say that those shipments are mainly seasonal. Because materials supplied to fuel briquettes and pellets producers are for household needs, definitely for the winter season. So, fuel-grade material is supplied to wide geographical directions.
Speaking about anode grade material, definitely India is a very interesting market. But China usually shows much better prices, much better netbacks for exporters. During the last five years, there were few shiploads of Azeris [SP] petcoke to India, to Indian calciners. Azeri petcoke is an extra low sulfur material. And the last shipment we saw, I think in 2018 formed of half Azeris and Turkmen petcoke. But sure, in mid and long-term perspective, there will be more shipments to India of Azeris, Turkmen, and possibly even Russian petcoke.
Erisa: Right. Thank you, Yury. One other thing that I'm really curious to know your views about is, what is the outlook for Russian petcoke output in 2021? And if you could bring a breakdown between the grades, that would be great.
Yury: So, in 2021 we expect [inaudible 0:22:08] what's new on the market. So, in 2021 we expect that Komsomolsk will operate on a normal level. And this will provide, as I told, 200,000 metric tons of anode grade material of 1.5% sulfur content for both local and export markets. I told you that most of this will be consumed locally and only a small part of that, about 40,000 would be available for export.
But we also expect that a new coker unit will be started. And I'm speaking now about a coker unit in Nizhny Novgorod, which has a capacity of about 700,000 tons per year. Quite a big one. The plant quality would be a border quality between anode grade and fuel-grade material. It would be 3.5%. But definitely, we'll see the exact quality only after the coker unit will be started.
Speaking about neighboring countries, by the end of this year or in the beginning of next year, another new coker unit will be started. And I'm speaking about Naftan, Belarusian Naftan, with a capacity of about 400,000 tons. And the same quality to Nizhny Novgorod, border quality between anode and fuel grade. With sulfur also about 3.5%.
So, summing that up, next year they would be possibly up to a half-million tons. Because Nizhny Novgorod will be started only in end of summer, beginning of autumn. Up to 0.5 million, half a million tons next year. And in 2022, possibly one million for these refineries, for these capacities. But also, another new coker unit would be started in 2022, which is Omsk. Which is also a big one, about 800,000 tons per year. So, in next two years, Russian output for petcoke will increase at least for 50%. And possibly, we don't know if all of the projects which were announced during the last years would be realized, but possibly in the next five years, we would see doubling petcoke output from Russian refineries.
Erisa: Wow, that's an impressive growth in capacity there. Thanks so much for the overview. And do you think that not only this additional supply that's about to come into market, but also the existing supply, will be mostly absorbed by domestic or international buyers?
Yury: During the last years, local consumption is very stable. Both for anode and fuel grade, we don't see new consumers or extra needs from the local buyers. And we expect that demand for anode grade material would be still on the level of 2 million metric tons. So everything extra, which would be starting or which would be available on the market, would be ready for exports. Sure, subject to effective pricing.
Erisa: Right. And do you have in mind some potential regions where it would go? Will it still be the key markets, the current key markets, or will Russian supplies start looking for new markets as well?
Yury: I would say that this will depend on location, refinery's location. The refineries which are located in Siberia or far east would definitely be focused on Chinese markets. Those which are located closer to European borders would have good chances to supply both to Europe and to some, you know, niche direction. I would say niche just because those are not traditional or not popular.
But I keep in mind possible supply to India. And even in some specific grades or some special grades to North America. There were few shipments in 2016-2017 to North America of extra low sulfur material. It's a big question what would be the demand next year, and what would be the global supply next year? But yeah, I hope that Russian refiners have good chances.
Erisa: Well, let's hope so. Especially taking into account that supply's been pretty tight in a lot of producing regions so far this year. So maybe this would be a very good timing for those refineries to start up and offer a relief to other markets as well. Yury, I'd like to thank you a lot for your valuable views. And if you enjoyed this podcast, please be sure to tune in for the other episodes in our series, "The Petcoke Podcast." For more information on Argus Petroleum coke coverage, please visit argusmeida.com/petcoke. Thank you. Thanks, Yury, again.