Activated carbon from India is fast finding its place in the global market. With ample access to raw material in South India, coconut shell-based activated carbon from India is meeting demand across sectors.Will this monsoon-dependent product prove a new favourite amongst exporters or will they find price volatility a tricky monster?
BY Anishaa Kumar | February 2018 Issue | The Dollar Business
Coconuts have long been a source of a cool and refreshing drink that can be enjoyed throughout the year. But now this humble fruit is finding use in a variety of industries in a very different form – as activated carbon. Activated carbon is manufactured from various organic substances with a high carbon content, the most popular being coconut husks. Activated carbon finds use across sectors - from air and water purification to gold mining and air masks. It is its unique adsorbing power that drives its demand and is produced from carbonaceous materials such as coconut husks, various types of pith, jute, wood, etc.
Globally, the export of activated carbon is expected to grow in the coming years. According to a research by ReportsnReports, the global market by value for activated carbon is expected to grow at a CAGR of 9.4% between CY2017 and CY2021 to reach $8.12 billion. The market by volume is also expected to grow at a CAGR of 8.4% during the same period. ‘MATERIAL’ BENEFITS While the raw material used in the production of activated carbon varies, the demand from India has mostly been for carbon produced from coconut shells. According to the Coconut Development Board, the export of activated carbon is driving the exports of coconut and coconut-based products from India. The reason, manufacturers and exporters say, is that the carbon content and quality of charcoal produced from coconuts is better. And India has the advantage here, specifically South India, as the region produces huge quantities of coconut. Activated carbon from coconut shells is produced using steam. According to Coconut Development Board, converting a coconut shell into activated carbon is a two-part process. First, the coconut shell is converted into charcoal through a carbonisation process.
The charcoal is then introduced to steam at a high temperature of around 900-1100 Celsius in order to activate the carbon and increase its adsorption capability. As of now, there are three main types of activated carbon that are available in the market: granulated, powdered or in the form of pellets. The granulated and powdered forms of activated carbon are the more popular forms and in the recent past the global demand for active carbon is being driven by an increase in consumption of the powdered variety, according to a ReportsnReports study. The report adds that the demand for powdered activated carbon comes from pharma and filtration industries where it’s used for decolourisation and deodourisation. Overall US, Japan and Germany are the largest importers of the product. US, followed by South Korea, UK and Russia were the biggest buyers of activated carbon from India in FY2017, a product that in large parts is shipped from Tuticorin Port in Tamil Nadu.
ON THE WAY TO GLORY
When it comes to India’s export performance in activated carbon, exports of the product has grown by about 17% between FY2013 and FY2017 to reach $120.97 million. In FY2018, as of October 2018, the exports revenue from activated carbon had already touched $83.45 million and according to exporters is expected to continue to grow substantially. While India is a major sourcing destination for activated carbon, China and US have maintained their No. 1 & 2 rankings in the exports of the product over the years. Contrastingly, while China’s exports have been on a decline, exports from US have been growing. And, if this trend continues we might see US surpassing China as the largest exporter of activated carbon in the near future. In CY2016, exports from China were worth $284.6 million against India’s $115 million for the same year. Interestingly, amongst top five exporters, only US and India have reported a growth in exports of the product over the last few years.
According to V. Pradeep Chandran, Head of Operations at Boyce Carbon, a leading exporter of activated carbon, one of the reasons for the rise in demand from India has been the quality of the raw material (coconut shells). He says, “When it comes to manufacturers in South India, the coconut shells we use are better compared to the coconut shells available in Indonesia, Philippines and other coconut producing regions.” In fact, some of the largest manufacturers and exporters of coconut-based activated carbon can be found in the states of Karnataka, Kerala and Tamil Nadu. Suresh K., Proprietor of Coimbatore-based Carbo Lase Technologies, concurs and adds that many buyers who were working with other forms of carbon or products with similar adsorption capabilities are now moving towards coconut shell based steam-activated carbon. While the demand for activated carbon has mostly been for water purification, exporters say that another industry that has helped boost the demand of activated carbon from India has been the gold mining industry where it is used during the process of gold extraction. David Raj, Export Manager at Tuticorin-based Raj Carbon, believes that the hardness level of the Indian product is a key factor behind the growth in demand and adds, “Indian coconut shells have the hardness level required for the filtration process. While Indian coconut shells have the minimum hardness level of 98, it is around 92-93 in Chinese variety.
Hence, for use in water filtration, buyers look towards Indian suppliers because of the quality of their shells. For processing of gold also the minimum hardness level required is 98-99. Other coconut growing countries like Philippines and Indonesia too are unable to supply activated carbon of this level of hardness. So, buyers have to source from India.” Suresh adds that an increase in volumes can be seen, especially over the last few years. “Volumes of both production and demand has increased over the years. In fact, the demand for the product has increased manifold in the global market,” he says. When it comes to India, activated carbon is usually exported in the form of a mesh, its size varying according to its final use. Chandran explains, “We cater to the clients depending on their requirements. For water purification they prefer the 8x30 mesh size by US ASTM standards, while for gold mines we supply 6x12 or 8x16 mesh sizes.” According to manufacturers, the industry thrives on exports since the domestic demand for activated carbon is very low. “There is some domestic demand but the volume required in the local market is quite small. So, 99% of the production is meant for exports. The reason is that, in India, the concept of filtration systems is not very popular and a very few sectors are using it,” says Raj.
While exports from India are growing at a fast pace, exporters of the product continue to face some challenges. One of the biggest challenges is rainfall, or the lack thereof, according to those in the industry. Exporters say that while when it comes to quality and carbon content Indian coconuts are the best, absence of regular rainfall impacts the availability of coconuts. When it does not rain the supply of raw material dries up in the market and leaves exporters in the lurch. It is at this time that manufacturers are dependent on imports of coconut shells. Stating that importing is not sustainable, Suresh explains, “We all depend on natural resources for our raw material so if we do not get any rainfall, like we did not get for a few months last year, there is a scarcity of raw material. Also, there is no alternative available for coconut shells in India. One can import the raw material from countries like Indonesia, but the import duty of around 26% does not make it worthwhile for us.” The profit margins of exporters are also impacted by rainfall as the prices of coconut shells rise due to the scarcity. This is because while exporters have a fixed price annual contract with their buyers, they are unable to get into a similar contract with local suppliers of coconut shell and have to buy the raw material at higher prices during times of scarcity.
Activated carbon is an important component in the filtration industry.
Among other things, implementation of Goods and Services Tax (GST) has also added to the cost of procurement. GST, Raj says, has had a major impact, especially on smaller and new companies, as they do not have enough capital to tackle the working capital blockage due to the delayed refund of GST. Profit margins are variable and depend on a variety of factors like availability of raw material, mesh size, etc. But, on an average, the profits range between 5% and 7%. Suresh however adds that profit margins have seen a decline. “Earlier, in the years from 2008 to 2010, we could get margins as high as 10-15%, but that have now reduced.
This is because of the increase in volumes. As the volumes have gone up, our prices have come down because of which the profit margins too have come down.” But, while the margin has reduced, he adds, the volume of his export has increased by as much as 4 to 5 times the original quantity when he began exporting around 5 years ago. Raj concurs, “Profits range around Rs.3-4 per kg. We cannot say the profits are less since we are dealing in volumes.” With pollution at an all time high and the environmentally-conscious world citizens taking to recycling and a healthier lifestyle, demand for activated carbon is set to grow on both domestic and international fronts. The good news is, Indian exporters are confident that barring a drought or an extreme reduction in rainfall, they will be able to keep up with the growing demand for activated carbon from across the globe.
TDB: What drives the demand for activated carbon?
David Raj (DR): In US and UK, there is a large requirement for filtration and recycling of water for which activated carbon is used. Their requirement for activated carbon is increasing by the year. However, I must say, that this is a price sensitive market. Customers buy activated carbon from India, Sri Lanka, Indonesia, Philippines and China. From China, they buy coalbased activated carbon and from India they buy coconut shell-based activated carbon. This is because Indian coconut shells have the hardness level required for the filtration process. In Indian coconut shells, the minimum hardness level is 98, but in the case of Chinese product it is around 92-93. So, for use in water filtration, buyers look for Indian suppliers because of the quality of our shells. For processing gold too, the minimum hardness level required is of 98-99. Other coconut growing countries like Philippines and Indonesia are unable to supply activated carbon of this level of hardness
So, buyers have to source from India. India is also one of the largest suppliers of activated carbon, so whenever companies are in search of bulk suppliers they look towards India. The Indian market has many large activated carbon manufacturers and large buyers typically work out a partnership with them.
TDB: What grades of active carbon are exported from India?
DR: While activated carbon is exported from India under various grades, the terminology depends on the country of import. In US and UK the gradation is defined by the American Society for Testing Material (ASTM). In Japan and South Korea buyers use the Japan Industrial Standard (JIS) to define grades. Based on these two standards, exporters from India grade their products. The grades are based on mm or mesh sizes as well as iodine values. For water filtration, buyers look for for 4x8, 8x30, 12x30 mesh sizes. For gold purification, they use the 6x12 mesh. For cigarette filtration, it is usually a 35x70 mesh.
TDB: Is there any domestic demand?
DR: There is some domestic demand but the volume required in the local market is quite small. So, 99% of the production is meant for exports. The reason is that in India the concept of filtration systems is not very popular and a very few sectors are using it. The Indian companies that may use it manufacture the product outside India and export it to the country. In India we do not do recycling. If the Indian government had given a push to recycling, there would have been a higher domestic demand.
TDB: How profitable is the export of activated carbon?
V. Pradeep Chandran (VPC): It is difficult to estimate the profit margin as the charcoal/coconut rate is in a constant state of flux. For example, a few months ago for a particular client we had quoted $1,500 per metric tonne (MT) and now the coconut price itself has gone up to $1,800 per MT. While with our buyers we have an annual contract, the market price of coconuts or coconut shells sold by farmers changes every day.
TDB: How have environmental regulations impacted the industry?
VPC: When it comes to manufacturers in South India, our coconut shells are of a better variety when compared to the coconuts from Indonesia, Philippines and other coconut producing regions. Nowadays, exporters from India are also seeing a demand for activated carbon in gold mining. But, pollution is one of the biggest concerns. Earlier, we did not need a chimney to produce charcoal. We would dig the ground, place the coconut shells and then make charcoal by burning it. It was a natural way of preparing charcoal. Nowadays we need to install a chimney and we need to follow the regulations and get approval from the Pollution Board. If we do not follow the regulations, they will come and close down our business. It definitely adds to the costs. Earlier anybody could manufacture charcoal, but now only people who have the facilities can participate in its production. The chimneys, however, are provided at subsidised rates by the Coconut Board.
TDB: Many exporters find the port authorities very hard to deal with. Is this also the case with activated carbon?
VPC: Most of our exports take place through Tuticorin Port, which is very user friendly. If you have the requisite export documents (declarations and certifications) there are no problems. The port authorities are extremely helpful. Activated carbon is classified as a chemical so all the required procedures for the export of chemicals need to be followed.
TDB: How has the industry evolved over the last few years? Have you seen an increase in the number of competitors?
VPC: The number of people manufacturing the product, both for domestic and export markets, has grown because activated carbon is now used in a variety of products. Our company is also looking at new products for car odour removal, removal of odours from refrigerators, etc. The demand is growing steadily. Earlier there were only 1015 manufacturers. But the number has grown manifold in the last few years.