Financial Times

Haycarb mulls new overseas plant
Haycarb, the Hayleys subsidiary making coconut shell charcoal-based activated carbon, plans to set up another overseas plant to reduce dependence on local supplies and anticipates increased demand and higher prices for its product, largely driven by growth in China.

Managing Director Ananda Hettiarachchy said charcoal supplies were improving after last year's shortage which led to a sharp dip in company profits but that the government should prevent raw material being exported without value addition when local industry can use it.

The commissioning of the Recogen charcoaling and power plant, which was delayed, should help ease the difficulties in getting raw material supplies. "We're looking at setting up another overseas plant to reduce dependence on Sri Lankan charcoal so we have a wider base of supply and to increase our supply capacity," Hettiarachchy said.

"We now see an increase in the world market in demand for activated carbon, some of it from China perhaps because of Western investments." The Chinese demand has put pressure on charcoal prices in countries like Indonesia and the Philippines and should help push up prices.

"We should see an increase in production volume and coconut shell carbon could find niche markets with the bottom end being met with other raw materials such as coal," Hettiarachchy said. Coconut has an inherent advantage over other types such as coal and wood-based carbon because of its hardness and high retentivity, its pore structure being finer than coal.

Activated coconut shell carbon is used in the gold mining industry to recover gold from ore, as well as in air and water purification areas such as gas masks, protective military suits, cigarette filters, odour removal and tap water filters.

Hettiarachchy said Haycarb should do better this year than in the year ended March 31, 2004 when group pre-tax profits fell sharply to Rs 84 million - a downturn of 63 percent. The shortage of charcoal was a result of the lagged effects of drought which reduced the coconut crop.

The company was forced to reduce sales and import charcoal. The shortage pushed charcoal prices up to $215 a tonne from $110 two years ago. Even now Haycarb is importing charcoal to ensure customers do not suffer but faced difficulties since charcoal is classified as a hazardous material and not every shipping line accepts it.

The company is also increasing capacity in its Thai plant and adding one more kiln to make new carbon. It already has a separate plant there to recycle carbon. Hettiarachchy explained that when the coconut crop falls the amount available for industry comes down since what goes for domestic consumption does not change because of Sri Lankan eating habits.

Collecting the large amount of shells discarded as waste from households is not economically viable. "So a shortage has a huge effect on shell availability for conversion to charcoal." Hettiarachchy said a reversal of the earlier trend where world activated carbon production capacity was more than the demand, causing prices to fall, was now evident with demand increasing in excess of supply.

Sri Lanka has a charcoal production capacity 45-50,000 MT. "The indications this year are that the crop is improving. The shell supply has improved but not to the extent anticipated." Also, charcoal is being exported with about 6-8,000 MT being shipped to some European countries and at times even to India when it has low crop. Charcoal fetches $250 per tonne in India now.

"We feel the government should prevent any raw material being exported without value addition when it is not in excess of the requirements of local industry," Hettiarachchy said. Haycarb's supply shortages should ease with the commissioning of its Recogen charcoaling and power plant subsidiary.

Its start up was delayed because of teething problems with the first of five modules and also because the company felt it prudent to wait for coconut shell availability to improve before commissioning the plant which is a new process that has been patented.

It will eventually have the capacity to make 30,000 MT of charcoal annually. "We have had to be ultra-careful in commissioning it so it has taken a little longer. Now we've corrected most of the bugs and hope to re-start by the end of July," Hettiarachchy said.

"And for the charcoaling plant to be viable we need to produce power - if not the cost of production would be too much." Hettiarachchy said the Ceylon Electricity Board's decision to reduce the price paid for power this year took the company by surprise as it expected the tariff to go up.

"There's no logical explanation. We have made representations and hope the government will look at it in a reasonable manner. We use a renewable resource to produce power and these should be looked at favourably and given incentives as they save foreign exchange."

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