BEIJING (Reuters) - China's carbon industry will face severe overcapacity from the second-half of 2020, after producers rushed to expand capacity amid fat profit-margins, an official from the China Carbon Industry Association (CCIA) said on Saturday.
Carbon products are widely used in sectors such as metallurgy, chemicals, aviation and renewable energy due to their strong resistance to corrosion and good conductivity.
"Extravagant profits have lured companies who shut down in bleak years to resume operations and even expand capacity," Sun Qing, CCIA's general secretary, said at an industry conference.
"Meanwhile, some who don't have carbon capacity are planning to launch new production lines."
Beijing's aggressive environmental protection campaign has tightened supplies of carbon products, but has also boosted demand for products such as graphite electrodes used to melt scrap in electric arc furnaces (EAF).
EAFs emit less toxic air compared to other steelmaking equipment.
Net profits at Fangda Carbon New Material <600516.SS>, China's biggest producers of graphite electrodes, surged 5,267.7 percent in 2017 from the year before to 3.6 billion yuan ($521 million), while average profit-margins in the Chinese carbon industry last year jumped more than 3,000 percent, according to CCIA data.
China is expected to have graphite electrode capacity totalling 1.5 million tonnes by 2020, up 66.7 percent from 900,000 tonnes in 2017, said Sun. That will exceed demand of less than 800,000 tonnes in 2020, he added.
Prebaked anode, a raw material used at aluminium smelters, will also see a glut in supply, with redundant capacity set to reach 9 million tonnes in 2018, before climbing more in the coming three years, according to Sun.
Unlike China's steel and coal industry whose capacity is strict controlled by the central government, carbon producers do not need to acquire approvals from authorities to add new capacity as long as they are able to meet environmental standards.
However, despite the capacity expansion, China will still face tight supply of high-quality carbon products such as needle-coke, which is used to make lithium-ion batteries.
"Carbon makers must not only focus on short-term interest and blindly expanding capacity ... but should seize this rare opportunity to improve technology and upgrade their products," said Sun.
($1 = 6.9048 Chinese yuan renminbi)
(Reporting by Muyu Xu and Philip Wen; Editing by Joseph Radford)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)