Activated carbon: The new ember warming up PHL economy
Black is the new color of money; and it grows on trees. Coconut trees, in fact, that are abundant in the archipelago.
According to University of the Philippines economist Ramon Clarete, coconuts grow best three kilometers from the shore and, being an archipelago, the Philippines is naturally endowed with what would seem an endless coastline peppered with rows of coconuts.
The size of the country’s coconut industry has allowed the Philippines to diversify into various products beyond coconut meat and juice. The Philippines produces coconut oil, coir—and, since the 1970s, activated carbon.
Activated carbon (AC), which is midnight black, is fast becoming the Philippines’s major export, a $100-million revenue-generating industry.
The traded commodity, which is made from coconut shells, has been posting a compound annual growth rate (CAGR) of 17.92 percent since 1991.
Demand comes from markets that use activated carbon—charcoal that has been heated or otherwise treated to increase its adsorptive power—for industries that cater to health care, mining, water filtration, air purification and others.
At the consumer level, activated carbon is used for health products such as toothpaste and toothbrush, and skincare products, including facial masks and creams.
Demand for food infused with AC has been also steadily growing in the domestic market such as lemonade and frozen yogurts.
THE global trade in activated carbon in terms of US dollar value has been growing at a CAGR of 8.21 percent, which is projected to hit a faster pace in the short term to medium term due to global environmental laws encouraging the use of AC.
The major players in terms of value are China, the United States, India, Germany and the Netherlands, according to International Trade Center (Intracen) data.
The Philippines is the seventh top exporter of AC in the world just behind Belgium.
The major AC importers in terms of value are the US, Belgium, Germany, Japan and China, Intracen data also showed.
The Philippines, to note, has been exporting AC for over five decades already, according to industry sources.
Last year alone, the country exported 76,992 metric tons (MT) of AC, which was valued at $135.187 million, the third straight year that total export receipt is above $100 million.
Total outbound shipment volume last year was 5.73 percent higher than the 72,819.893 MT exported in 2017, while the revenue was 20.03 percent over year-on-year.
Shipments of AC accounted for 7.18 percent of the total $1.882-billion worth of coconut products the country exported in 2018.
The Philippines exports AC to over 68 countries today, more than double the 25 markets it used to ship the commodity to way back in 1991, PSA data showed.
In 2018, Germany was the top buyer of Philippine-manufactured AC, with a market share of 16.2 percent in terms of value, with Japan trailing slightly behind at 15.1 percent.
Industry sources attributed the growth of Germany’s imports to its laws encouraging the use of organic materials to reduce pollution, provide cleaner water and better health options.
And yet, in 1991, Germany could have been easily bumped off the Philippines’s radar as it only accounted for a measly 0.0429-percent market share of the total exports.
ACTIVATED carbon is one of the country’s global leaders, Philippine Coconut Authority (PCA) Trade Information and Relations Chief Luz Brenda P. Balibrea told the BusinessMirror.
Global leaders are export products that earn hundred millions of dollar but below the $1-billion mark, she explained. In fact, Balibrea noted, AC ranks third among the country’s traditional exports of coconut products.
Despite the export receipt that the country earns from AC, the commodity remains “unknown” to Filipino consumers, coconut planters, and even to policy-makers.
“It is one of our global leaders and yet it is unknown to many,” she said. “It is unknown not just to coconut farmers but to the Filipino people—they do not know it as a whole.”
Clarete said the lack of awareness on AC stems from various reasons, one of which is the fact that the Philippines seemed to have rested on its laurels, having been a major player in coconut oil exports in the 1970s. He said the Philippines, knowing it had secured a position in the global coconut oil market, did not see the need to explore other uses for the coconut, such as dealing with waste or coconut shells. He said it took a Japanese investor to see the incredible potential that the country had in producing activated carbon.
The Philippine-Japan Active Carbon Corp. (PJACC), according to its website, was established in 1972 as “the only company granted by the government to operate at 100-percent Japanese capitalization.” It is a pioneer in the field and is now one of the largest coconut-based AC manufacturers in the world.
“Japan saw the importance of activated carbon in a particular industrial product, which can be found in the Philippines,” Clarete said.
Tool for mining
ACCORDING to Balibrea, while “activated carbon is part of our daily lives”—AC could be found from a tablet of a popular loperamide brand to water purifiers—it is used in gold mining operations.
According to Philippine Activated Carbon Manufacturers Association (Pacma) Inc. President Isidro T. Ang, the local small-scale mining operations at the height of the gold rush in Mindanao were big users of activated carbon as it is used with cyanide in extracting gold dust.
Small-scale miners use two methods of extracting gold. One is the ball mill method, where the machines pound and crush the ores and stones into finer grains and then subject them to mercury for the extraction of the gold dust.
The other method is the “carbon in-pulp,” which processes pulverized ores in a vertical tank by immersing these in cyanide. Activated carbon, in 4×8 mesh-sized granules, is used to magnetize the gold dust from cyanide.
Likewise, burning the AC is one of two methods to get the gold from the carbon.
“One good thing these miners like with AC is that the used carbon can still be reused,” Ang said in an interview with the BusinessMirror at his office in Davao City on April 24.
UNIVERSITY of Asia and the Pacific (UA&P) Center for Food and Agribusiness (CFA) Executive Director Rolando T. Dy explained that production of coconut-based products like activated carbon is based on where the raw materials are sourced. This reduces the logistics costs, which is still steep in the Philippines.
This is the reason a lot of coconut products come from Mindanao, particularly Davao and General Santos, where a lot of coconuts are planted, Dy explained.
Ultimately, Dy told the BusinessMirror, what prevented the Philippines from becoming a top producer of activated carbon is the fact that very little support is given to the coconut sector in general. This would explain why innovations could not be introduced in the sector.
Despite these problems, activated carbon can be a sunrise industry, according to Dy. But for this to happen, coconut farmers should be organized. This will help address supply challenges and determine how best to maximize their earnings.
He said farmers can determine how much coconut shell is needed to produce a kilo of AC and how best it can be collected.
In the process, this can also help determine logistics costs and challenges to bring these products to manufacturers and eventually to consumers.
Textile route: from boom to bust
CLARETE said, however, only by adopting a value chain approach can the government see other potential winners. Hence, this must be accompanied by necessary public investments in research and development.
He said in order for the country to seize the opportunities in the global activated carbon market, researches should be done to determine other uses for the product and how best to produce it. He said institutions such as the UP College of Home Economics can study its properties and this, in turn, can be funded by a grant from the Department of Science and Technology (DOST).
Clarete said failing to do this will only repeat the country’s mistakes in industries such as textiles. Initially, the Philippines was a major player in textiles but innovations made by other countries diminished the country’s competitiveness in textile production. The lack of investments in creating more innovative products caused the Philippine textile mills to suffer great losses which they have not been able to recover from until today.
Dy also lamented that 75 percent of the government support extended to the farm sector goes to rice. This despite the fact that in terms of hectares, land planted with coconut is more than the 3 million hectares that is dedicated to rice production.
“This is the reason why you cannot ‘see’ activated carbon. In fact congressmen and senators do not know this. [For them,] our major export is coconut oil then desiccated, refined,” he told the BusinessMirror. [Demand is also increasing for] other products [such as] VCO [virgin coconut oil], coconut water, coconut shell, coco coir. But there is no powerful interest pushing for self-sufficiency [in coconut].”
Average capacity utilization
CLARETE also believes the Philippines must determine whether activated carbon is a concern of the Department of Trade and Industry or of the Department of Agriculture.
“So that’s coordination at the level of the government. The roles and involvement of DA and DTI must be clarified, where their responsibilities begin and end,” he added. “[It is also important to determine] what are the value-chain issues [in AC] that are supposed to be addressed. Policy or information [and] the last is really giving free credit.”
Dy said these studies can help determine the average capacity utilization of manufacturers and the challenges they face in producing activated carbon. He said that a capacity utilization of 50 percent is not enough reason to increase businessmen’s interest in activated carbon.
The average capacity utilization of the entire manufacturing sector averaged 84.3 percent based on the results of the Philippine Statistics Authority (PSA) Monthly Integrated Survey of Selected Industries (MISSI) in February.
Ultimately, Dy said the government must adopt a multiproduct approach when it comes to coconut. This will also address wastage issues in the coconut industry, especially where AC is concerned.
Threat: raw coco charcoal export surge
COCONUT-SHELL charcoal is the primary raw material for the country’s activated carbon manufacturing. But that same material is now threatening the country’s global stature as top exporter of activated carbon.
The local AC industry has been self-sustaining for years that it has been thriving and even expanding without any government support.
Balibrea noted that the spike in exports of coco charcoal has been flagged by local AC manufacturers as a threat to their industry.
“Our export of raw charcoal has been rising and it’s a threat to the supply of local AC manufacturers,” she told the BusinessMirror. “And according to AC manufacturers, it is also dangerous to export raw charcoal if not properly packaged or stored as it could catch fire while being shipped.”
Balibrea said shipments of raw coco charcoal rose in recent years due to high demand from other AC manufacturers such as China and Japan, especially since Philippine coconuts are the best source of charcoal.
Since, the government has no existing laws or orders that regulate raw coco charcoal exports, the PCA could not do anything about it, Balibrea added.
“So, that is one of the things we are studying or looking into right now. We are thinking of how to regulate the coco charcoal exports,” she said.
The country’s coconut-based charcoal exports in 2018 expanded by 136.39 percent to a record-high 88,357.008 MT, from 37,377.190 MT recorded in 2017, PSA data showed.
TOTAL exports of coconut-based charcoal last year was 15,537.115-MT higher than the total AC shipped by the country to the global market.
In March this year, Pacma members exported 3,350 tons. Including the country’s biggest producer based in Cebu, exports would reach 4,350 tons, which would be equivalent to $7.5 million.
“This is roughly the monthly production of the industry,” Ang said.
Export receipts from coconut-based charcoal more than doubled to an all-time high of $47.634 million from $21.680 million in 2017, PSA data showed.
From 1991 to 2018, coconut-based charcoal export receipts posted a CAGR of 16.80 percent, while its shipment volume had a CAGR of 45.87 percent.
In 2018, China dethroned Japan as the top buyer of Philippine coconut-based charcoal, a position held by the latter since 1991, PSA data showed.
China’s import volume of coconut-based charcoal expanded by 232.55 percent year-on-year to 30,398.636 MT, which overshadowed the 29.06-percent increase in purchase of Japan, trimming its market share to 30 percent from the usual above 50-percent level.
However, in terms of export receipts, Japan still remains on top. Total purchase by Japan last year was valued at $20.282 million (a 34.36-percent increase year-on-year) compared to the $12.626-million export receipt to China.
Nonetheless, the sudden surge in purchase of coconut-based charcoal by China drove its import bill to expand by 228.96 percent year-on-year.
Dealing with supply
THERE are about 21 AC manufacturers/traders/exporters in the country, the 2018 Philippine Coconut Authority (PCA) trade directory showed.
Aside from supply competition with raw charcoal exporters, AC manufacturers are facing a problem now that seems to be their own doing.
Davao, the country’s top AC producer and where six manufacturers are located, is experiencing saturated supply conditions due to stiff competition.
Since most of the AC manufacturers are in the Davao region, they tend to elbow each other out to grab the available domestic coconut shell supply.
“In fact our charcoal utilization—considering our total exports abroad—compared with our annual coconut production, is very minimal,” Balibrea said. “But the problem and issue now is that most of our AC manufacturers are in one region, in the Davao region. So right now, they are competing with one another to get coconut shell supplies.”
AC manufacturers and investors located themselves in Davao since it is the country’s top coconut-producing region with an annual nut output of 1.9 million metric tons.
Furthermore, the region is a strategic export location as it has logistical capacities such as ports and airports.
“Perhaps the investors also overlooked that there are already a lot of AC manufacturers in Davao since investments are not being regulated,” Balibrea said.
In 2018, Davao Region accounted for more than half of the total coconut shell-based AC exports with its total export receipt reaching $67.285 million, 56.71 percent over $42.933 million recorded in 2017, PSA data showed.
ASIDE from coconut shell charcoal, activated carbon is being sourced from wood, coal and shells. Coconut shell charcoals are commonly preferred by local clients because of their capacity to be reactivated, or recycled.
Activated carbon is classified into three types according to the size and density of porosity: the macro type, with bigger pores (wood); the micro type (coconut shell) and the meso type, which is mid-macro and mid-micro (coal).
Due to supply issues in Davao, the PCA is now promoting other coconut-producing regions as an alternative area for new interested AC investors in the country, Balibrea said.
Among the regions that PCA is promoting to be a next hot spot for AC manufacturing are Bicol, Zamboanga and Soccsksargen, she added.
Balibrea said that establishing an AC manufacturing plant is capital-intensive, with just one component of the whole process costing at least P40 million. The total investment for a new AC player could reach at least P100 million.
Based on PSA data, Region 10 is the next top coconut-producing region with an annual output of 1.82 million metric tons followed by Region 9 with 1.63 million metric tons.
However, the promotion of alternative areas for AC production could be hindered by some logistical concerns, particularly the sourcing of raw materials.
For one, most of the Filipino coconut farmers are small-holders and unorganized, which makes it difficult to consolidate and procure coconut shells, the primary source for coconut charcoal production.
Worse, the procurement of coconut shells in some areas like Bicol and Samar is challenging due to lack of proper infrastructure that would facilitate shipment of goods.
“Our real problem is that our coconut producers are small-holders who are at the mercy of the traders. They are unclustered and that is a logistical issue,” she said.
“Unlike in Davao, it’s one huge cluster and you can just buy all the shells. Perhaps it is because the essence of cooperatives or collective marketing is not yet rooted in our industry,” she added.
THE Philippines produces around 15 billion coconuts annually, more than half of which goes to coconut oil production, based on a BusinessMirror analysis.
A metric ton of coconut oil requires about 8,316 nuts.
This means if the Philippines exports about 1 MMT of CNO annually, then it needs 8.316 billion nuts to produce such volume.
Majority of these coconut shells are just left rotting in the farms or used by planters for fuel purposes, as they only need the dried coconut meat or copra to sell to traders and CNO producers, Balibrea said.
The sale of coconut shells to AC manufacturers could provide additional income for copra farmers.
However, it’s a logistical nightmare for AC manufacturers to collect the coconut shells from small-holder farms since they are dispersed, Balibrea said.
What AC manufacturers could do is to partner up with desiccating factories to purchase left-over coconut shells which they do not utilize in their operations, she added.
Desiccating factories purchase de-husked coconuts from farmers with the coconut shell becoming a waste after the whole extraction process.
“Imagine if you can capture the volume of coconut shells being wasted in coconut oil production for activated carbon manufacturing,” she added. “Plus if you can cluster the producers and improve their production and integrate the whole value chain.”
BILLIONS. This is what cost the government for being myopic in its policy regime on the coconut industry by focusing on one export product while shying away from diversification, Balibrea pointed out.
“It’s just like love: someone comes to your life, loves you, but you are looking [the other way],” she said. “There’s really a disconnect.”
And in this love story, AC could be the hopeless romantic. “That’s why if you look at it, my God, for so many years we’re throwing away billions of money!” Balibrea remarked.
Furthermore, the PCA official pointed out that there is also a disconnect between policy-makers and the people on the ground.
More likely than not, information on coconut product diversification does not reach the ground or is properly disseminated to farmers.
This, Balibrea pointed out, has resulted in farmers focusing merely on producing copra for the extraction and export of CNO.
“That’s the only thing our farmers know, coconut oil. But in reality, a lot of products could be made out of coconut,” she said.
“From generations to generations, farmers only know to make copra for CNO. This is the only thing the industry knows. There are just some disconnects, especially in information. We have a lot of products—not just copra—which we did not focus on,” she added.
ANG is appealing to the government to stop businessmen and business groups from continuing their export of raw coconut shell charcoal, citing the critical low level of supply during the last two years.
He said this is one of Pacma’s several recommendations so that businessmen could stay afloat in the stiff competition among the four leading Asian exporters of AC—India, the Philippines, Sri Lanka and Indonesia—that all rely heavily on coconut shells for production.
Ang said the export of coconut shell charcoal has been going on for years to the detriment of the industry. Direct exportation of the charcoal hurt the industry worst during the long dry spell years of 2016 and 2017, he said.
Before the damaging El Niño two years ago, Pacma members would buy the charcoal at P12 a kilo, according to Ang. In the aftermath of the dry spell, “we have to pay P21 a kilo, erasing the margin of profit.”
He added that with scarce supply, only 50 percent of the respective production requirements of companies engaged in producing AC is met.
At Premium AC Corp. in Davao, of which he is also the president, Ang said only two or three rotary kilns would be operated. The factory would need 100 tons of charcoal daily to run all its five rotary kilns.
Besides, he added, the dwindling supply would also force the market to shell out additional money to scramble for the available charcoal.
“It’s a double whammy actually: there’s a lack of raw material and the available materials carry a high price,” Ang said.
Open to competition
ANG told the BusinessMirror Pacma also hopes that “companies and the public would stop using coconut shell charcoal as their direct source of fuel.”
Some companies, like those engaged in desiccated coconuts, also use coconut shells to feed their boilers.
The combined charcoal used directly by these companies and households for fuel would add up to the competition for coconut shell charcoal.
The industry has yet to come up with the current total accounting of the coconut shell charcoal exported directly and the total volume of these charcoal used directly as household fuel.
With the lack of materials, AC producers have to spend more to acquire the raw materials.
Pacma also hopes the PCA would “be more aggressive with replanting coconut lands” as majority of existing trees are senile.
“It would also help the industry well if [the PCA] would also set up a good transport system to bring the copra [coconut meat], the coconut shells and all other coconut tree products onto highways and [to] the markets,” Ang said.
He said there had been steady feedback from farmers and visitors that coconut shells were being dumped along farm roads and empty lots but away from the roads and highways.
What Pacma also wants to happen “is to control or contain the competition for the raw materials,” a “very good source” of which is Mindanao.
“What we wish also is for the competition to be controlled because we would not like to be in a situation where we would all be scrambling and competing for raw materials.”
This year, two more companies are going into activated carbon production using coconut shell as raw materials.
“There is one in Pagadian, and another one in Tupi, South Cotabato; the latter is still in the construction stage,” Ang said.
Wake-up call; time to move fast
JUST like any lover, Balibrea remains hopeful that change will come to policy-makers for the better future of the coconut industry.
Or maybe sooner, Balibrea hopes, since the coconut industry is struggling to survive amid declining global CNO prices due to a glut in the world vegetable oil market that has sent domestic copra prices plunging below profitable levels.
Domestic copra prices are dictated by global CNO prices since the commodity is the primary source of the Philippines’s top exported agricultural product.
“This is a wake-up call for policy-makers and government planning. It is only when you are hurt that you think of other things to do, other things to survive,” she said.
“We were just slow in paradigm shifting—really slow. We move two steps forward, but we also move two steps backward afterward,” she added.
The government has proposed various actions to hike domestic copra prices but to no avail, as much of the recommendations of the PCA and the Department of Agriculture remain pending before economic managers and higher-ranking officials.
Having a more organized sector will increase not only the number of farmers but also act as impetus for the government to approach activated carbon from a “value chain approach.”
Balibrea believes diversifying into other coconut-based products, such as AC, is the only way for the industry to sustain growth and survive in the long term.
“The activated carbon industry could expand beyond its current growth if the government would support it,” she said. “If ganoon tayo ka-advance mag-isip [If we have foresight] then, we won’t have any problems, unlike today. I would like to believe, it’s not too late; it’s not too late,” Balibrea said.