Activated Carbon Sourcing Dynamics in the Twenty-First Century
By Jon Maurer
Procurement of activated carbon (AC) needs to have the correct risk evaluation by a company to clearly identify its importance to senior executives, owners and other influential decision-makers. The procurement group needs to accurately describe the risks, weigh them and establish mitigation actions. The risk evaluation process requires annual updates (look back on past performance and look forward to changing, developing or new risks). This sets the stage for creating a robust procurement process supported by appropriate resources or included in the purchase price for third-party intermediaries with support of company leadership.
If your global sourcing program for powdered and granular activated carbon (PAC and GAC) has not changed significantly in the past 25 years, you may not be providing the best value and mitigating risk as much as you could for your organization. In 1991, the US and Europe produced the majority of global coal-based AC, both powder and granular forms. The Philippines and Sri Lanka produced the majority of coconut AC with significant production taking place in Europe. The US and Europe produced the majority of wood-based AC. The situation started to change significantly around 1995. China commenced rapid expansion of coal-based AC production from one factory to a dozen factories to 75 factories by about 2000.
Currently China has at least doubled the production capacity of the rest of the world for coal-based AC, with most of the rest of the capacity in the US. Europe has very little AC production capacity for coal, wood or coconut AC. Coconut-based AC is still produced in significant quantity in the Philippines and Sri Lanka, but Indonesia, India and Thailand have grown and also have significant production capacity. The US continues to produce substantial quantities of wood-based AC, while Brazil and China have also grown to be significant producers; Africa is growing and may soon achieve significant capacity as a global source.
There are other sources of AC in Australia, Russia, Malaysia, South America, eastern Europe and other countries, but they are not yet high-quality, high-volume, reliable supply sources for global users; they may, however, be adequate for regional or local needs. New and developing suppliers often need careful quality monitoring because significant operating fluctuations are common with new and developing producers. Clues to monitor include significant increases in production, implementation of new production equipment or processes, and introduction of new products, particularly if there is a degree of complexity greater than the suppliers base-production process knowledge. So what should you and your company be doing differently?
What should you be doing differently?
Companies supplying facilities in Europe have probably been evaluating new sources in China, Asia, South America, Africa and eastern Europe for about 15 years. I suggest this will not change, but you should continue to cast your net each year for new suppliers. If not already in place, you need a robust, quality testing/product quality confirmation process before the product leaves its country of origin.
A tariff (that has been in effect for about 10 years) fluctuates down but mostly up, based on the country used for the base calculation. For suppliers to US facilities, coal-based carbon imported from China has a substantial tariff of about $1,500 (USD) per metric ton (almost $0.70/pound), which is only an estimate because the tariff is always one to two years behind the calendar. As a result, this can create a big liability or a gain for an organization one to two years after purchasing the AC. Most large companies take a dim view of financial surprises greater than $100,000 on goods purchased one to two years ago. One way to consider mitigating the tariff calculation risk post-purchase is to use an intermediary who pays the tariff. Companies should not rely solely on a US source because if the tariff is lifted, it is not clear that US suppliers can make a profit. Looking at pre-tariff financial performance, several carbon suppliers were in serious trouble. Further, the major US suppliers, under the duress of investment funds or new owners, have not invested in sufficient new capacity, while the Chinese have about 300,000 metric tons of annual capacity that includes direct activated and agglomerated product.
US PAC production has increased substantially, but the high capital cost of US factories (as compared to China and South America) forces serious concern that a public US company may not be able to provide an adequate return to investors without tariff protection. How long will the US tariff on AC from China continue? It is likely less than 10 more years, based on clues from the US steel industry. It also is always worth considering the coal supply. A company with a secure long-term supply not subject to labor unrest reduces the risk of supply disruption. For wood and coconut carbon, there’s no need to worry about tariffs, but it is prudent to keep developing production in China, India, Indonesia, Thailand, South America and Africa on the evaluation list. Coconut is always subject to weather and weather disasters (typhoons, lack of rain, floods, earthquakes, etc.). It also exhibits the characteristics of the soil where the crop is grown. As an example, some identified high-arsenic content may have been the result of chemicals used. Sourcing from multiple regions mitigates these weather and harvest risks. Wood has historically not suffered from lack of supply and is unlikely to register a significant supply risk in the future. In fact, there may be new sources of this product from waste-derived, starting materials that have equivalent or superior product quality attributes.
The astute procurement professional will engage a longer and broader view, to include new regions and new starting-material evaluations in the cycle. Another crucial decision is how to construct the robust evaluation and quality assurance process recommended. This may depend on the organization, some of which may have the resources and the continuity of purpose to create a robust system in-house with the resources strategically placed globally or with the globe-trotting resources home-based together to maximize collaboration. Over the past four decades, experience suggests that in-house resources are fine when times are good, but often fall prey to the pruning that periodically occurs with leaner financial times and/or regime changes, particularly in public companies. The alternative is to identify and work through experienced third parties that have global resources; know the business; have a robust-proven testing capability; can protect clients from the tariff on coal-based AC imported from China to the US and can evaluate new regions and materials to supplement existing supply and provide other benefits.
Clearly, activated carbon procurement has changed significantly in recent years and perhaps, may change more in the coming 10 years than it has in the past 25. Global developments (perhaps outside the usual area monitored) may hold either great opportunity to find value or great risk of supply disruption. The suggested process to cast a wide net with a robust procurement process can serve well to secure the constant flow of high-quality, high-value activated carbon with optimized total cost of ownership that is crucial to process and production.
About the author
Jon Maurer is the former Vice President of Global Manufacturing for Calgon Carbon Corporation. He is a recipient of the International Activated Carbon Conference Hall of Fame award. Maurer owns and is active in Green Technology Consulting LLC in Fayetteville, GA, with a global practice that includes activated carbon and a wide variety of other business-practice areas. He began his career in 1977 and his activated carbon affiliation in 1991. Maurer has traveled to five continents and visited more than 150 activated carbon facilities.