IMO 2020: unforeseen Consequences for aluminium prices

A less publicised, but none the less important impact of IMO 2020 is that on the p etroleum coke (petcoke) market which ultimately impacts the aluminium cost of production. D epending on its sulfur content , p etcoke can be used as a utility fuel in power plants or to produce carbon anodes (for aluminium smelters) . This is determined by the crude feedstock to the refinery. The primary aluminium industry is the main consumer of anode grade petcoke, having an ~80% market share. The carbon anodes are an irreplaceable element in their supply chain and estimates suggest 15-25% of said supply could come offline. This loss of supply is a result of changes refineries make to their crude slate in order to respond to market pressures arising from the IMO 2020 regulations. I n 2017 we estimate that GPC and carbon anodes (including GPC) represented 7.6% and 15.0% of total aluminium smelter costs. In our base case scenario, we suggest a GPC price of $467 will be necessary to incentivise coking and keep supply online. This would add almost 50% to the 2017 price of carbon anodes, and represent a significant addit ion to aluminium smelters costs. Holding all things constants, average smelting costs would rise from $1,650/t to $1, 775/t. Longer term, the bunker market will reach equilibrium as more scrubbers are installed and prices normalise due to refinery capacity being upgraded. This will reduce pressure on the carbon anode market.