China's activated carbon industry originated in the 1950s and entered a period of rapid development in the 1990s. After more than 20 years of development, it has basically formed a relatively complete industrial system and has become the world's largest producer of activated carbon. Its production capacity not only meets domestic demand but also exports in large quantities to Europe, America, Japan, and other countries and regions. The number of activated carbon enterprises has also rapidly increased from dozens in the early 1980s to more than 300 currently. With the continuous development of China's economy and the gradual improvement of people's living standards, the application of activated carbon is receiving increasing attention. Especially in the current context of the country continuously strengthening environmental protection efforts, domestic demand for activated carbon continues to grow, with both production capacity and exports on the rise‌.

Since the 21st century, China's activated carbon industry has developed rapidly and is still in its growth stage. Even though the growth period for activated carbon in China may be shorter, it is expected to last for about 20 years. Therefore, China's activated carbon industry will still be in its growth stage in the next 10 years. During this growth stage, the demand for activated carbon products from downstream sectors will increase annually. According to conservative estimates by the Qianzhan Industry Research Institute, domestic demand for activated carbon is expected to reach 450,000 tons by 2018, with an average annual growth rate of over 10%‌.

Activated Carbon ‌Industry Development Level‌

Currently, China is the world's largest producer and exporter of activated carbon, with more than a thousand product categories and applications spanning almost all important national economic sectors, including water treatment, air pollution control, environmental protection, and new energy, compared to the limited fields of medicine, food, and military industry in the 1970s. Due to the heavy reliance of activated carbon production on coal and forestry resources, China's activated carbon industry exhibits a clustered pattern, with coal-based activated carbon industrial clusters concentrated in northern provinces rich in coal resources such as Ningxia, Shanxi, Inner Mongolia, and Xinjiang, and wooden activated carbon industrial clusters concentrated in southern provinces rich in forestry resources such as Fujian and Jiangxi. Within these industrial clusters, industry leaders have emerged with complete product categories, large scales, and leading technologies‌.

Although China's activated carbon industry has become the largest in the world in terms of scale, overall, the development level of China's activated carbon industry still lags behind mature markets such as Europe, North America, and Japan. Firstly, there is still a significant gap between China and mature markets in basic research, production technology, product application, and new product development. Due to the late start of China's activated carbon industry, most enterprises do not have standardized production equipment for the production environment of activated carbon and can only produce basic activated carbon through simple activation processes. Therefore, the unit added value of China's activated carbon products is relatively low, and the product structure is relatively simple. Secondly, the concentration of China's activated carbon industry is low, with most enterprises having backward technology, a shortage of talents, and low production capacity. These enterprises have high energy consumption, heavy pollution, and low product gross margins, which partially contribute to disordered competition in the industry. With increasingly strict environmental regulations, high labor costs, and intensified industry competition, most backward production capacity may face integration or elimination‌.

‌Industry Competitive Landscape‌ of Activated Carbon

In the 1990s, against the backdrop of European and American countries transferring activated carbon production capacity to developing countries, foreign high-end activated carbon enterprises began to invest and establish factories in China. Major coal-based joint ventures include Datong Carbon Co., Ltd., Calgon Carbon (Tianjin) Co., Ltd., and Kuraray Chemical (Ningxia) Environmental Chemical Co., Ltd. Due to foreign enterprises' advanced technology and strong financial strength, while domestic enterprises were in their infancy, the activated carbon market was dominated by foreign enterprises at that time. However, joint ventures mainly supplied semi-finished activated carbon or basic activated carbon as raw materials for refined activated carbon to the mid-to-high-end market, and the domestic market was not yet saturated. The main businesses of foreign and domestic enterprises did not overlap, and they were not in direct competition. Domestic activated carbon enterprises, relying on low labor costs, abundant raw materials, and policy support, rapidly seized the market, and industry leaders and regional leaders emerged. Currently, major domestic coal-based activated carbon enterprises include Ningxia Huahui Activated Carbon Co., Ltd., Shanxi Xinhua Environmental Protection Co., Ltd., Shanxi Huaqing Activated Carbon Group Co., Ltd., and Shenhua Ningxia Coal Industry Group Co., Ltd. Major wooden activated carbon enterprises include Fujian Yuanli Activated Carbon Co., Ltd. and Fujian Zhixing Carbon Industry Co., Ltd‌.

From the perspective of the overall market, the first characteristic of China's activated carbon industry structure is the low overall concentration and market fragmentation. Currently, there are more than 300 enterprises engaged in activated carbon production, sales, and related businesses in China, but only a few have a production capacity of 10,000 tons. Most enterprises can only produce low-to-mid-end activated carbon, resulting in the market being divided into low-to-mid-end and high-end markets. The high-end market is dominated by a dozen enterprises, including industry leaders such as Yuanli (a leading wooden activated carbon enterprise) and Shenhua Group (a leading coal-based activated carbon enterprise), with joint ventures also occupying a certain market share. Participants in the high-end market have significant product differentiation. They either possess advanced technology, extensive channels, or control of upstream resources, and have a certain degree of bargaining or pricing power, allowing them to maintain higher gross margins. The low-to-mid-end market has numerous participants, with fragmentation and severe product homogeneity, leading to disordered competition and shrinking profit margins, which in turn drag down the overall industry's gross margin‌.

The overall industry concentration is not high, and the polarized market structure has led to a gradual excess of activated carbon production capacity. The de-capacitization of upstream coal and energy industries resulted in a similar process for China's activated carbon industry around 2011. Some small and medium-sized enterprises (SMEs), due to high energy consumption, heavy pollution, and inability to meet environmental standards, as well as being impacted by upstream raw material supply disruptions, exited the competition, reducing the number of industry enterprises from over 600 in 2011 to the current 300-plus. This round of de-capacitization temporarily impacted the gross profit margins of leading companies, dropping from 30%-40% to around 20%. However, with the nation's progress in de-capacitization, especially the deepening of supply-side reforms in 2017, on one hand, market demand for activated carbon products increased; on the other hand, most non-compliant SMEs were ordered to shut down due to environmental issues, leading to a significant reduction in activated carbon capacity and a market shortage. In recent years, with the acceleration of industry integration, and with companies like Yuanli Share Co., Ltd. listing on the ChiNext board, and Ningxia Huahui, Huaqing Share Co., Ltd., and Zhixing Carbon Industry listing on the National Equities Exchange and Quotations (NEEQ), industry leaders or regional leaders are expected to leverage the power of capital markets to accelerate endogenous and exogenous expansion, continuously integrate resources, increase industry concentration, and achieve orderly competition and stable development within the industry.

The second characteristic of China's activated carbon industry landscape is the expansion of industry dimensions through upstream and downstream enterprise layouts. In terms of the upstream, the scale of the activated carbon industry cannot be compared to that of upstream coal mining and coal chemical industries. Furthermore, the upstream industries face strict government regulations, making it difficult for activated carbon enterprises to enter. Conversely, upstream enterprises can leverage their scale and resource advantages to enter the activated carbon industry, such as Shenhua Ningxia Coal Industry Group Co., Ltd. With the completion of de-capacitization in the activated carbon industry and the recovery of downstream demand, more upstream enterprises will be attracted to venture into the activated carbon sector, becoming significant industry competitors.

Regarding the downstream, the increasing specialization and segmentation of activated carbon applications have led key activated carbon enterprises to deepen their involvement in specialized application fields. The characteristics of cross-border business integration have become increasingly evident, resulting in a gradual transformation of business models, from production enterprises to service enterprises providing application solutions in specialized fields, such as water treatment activated carbon producers gradually transforming into water treatment solution service providers. Not only are business models changing, but some enterprises are also beginning to layout downstream industries, practicing a vertical integration strategy.

Therefore, the entry of upstream enterprises and the downstream expansion of industry enterprises not only diversify and complicate the competitive landscape but also expand the dimensions of industry development.

‌Currently, the development of China's activated carbon industry exhibits several key trends‌:

Firstly, industry integration is accelerating, driving an overall improvement in the competitiveness of China's activated carbon industry. As environmental regulations in China become increasingly stringent, most small and medium-sized activated carbon production enterprises with high energy consumption, heavy pollution, and low productivity will be eliminated. Leading enterprises are expected to leverage their advantages in technology, capital, and talent to expand market share, enhance industry concentration, and promote orderly competition within the industry. Industry leaders and regional leaders have already emerged, equipped with independent intellectual property rights, R&D capabilities, and the ability to launch new products, which will gradually enhance the comprehensive competitiveness of China's activated carbon products.‌

Secondly, the deepening and expansion of application areas are creating a broader and more multi-dimensional industry space. On one hand, activated carbon continues to deepen its application in traditional fields, leading to the emergence of more segmented markets. Food and beverage, water treatment, and industrial applications are the three main areas where activated carbon is used. Depending on the specific application, activated carbon is continuously being developed to adapt to different working environments and possess various adsorption functions, resulting in specialized segmented markets. For example, in gas purification, the specifications, forms, and usage methods of activated carbon differ between applications such as atmospheric governance and household gas purification. This deepening of application areas by activated carbon enterprises extends the industry's growth trend and expands its dimensions at a micro level. On the other hand, the application of activated carbon in cutting-edge fields such as biomedicine and new energy is expected to break through the current market growth bottlenecks and bring huge growth potential to the industry. Advances in areas such as EDLC, natural gas adsorption, and blood purification are expected to drive cross-industry integration with fields like biomedicine and new energy, changing the current growth logic of the industry and presenting a broader industry prospect.‌

Thirdly, business is continuously upgrading, and the extension of the industry chain has become a trend. Competition in the activated carbon industry is intensifying, and market differentiation is becoming increasingly evident. The upgrading of business models has become an inevitable trend. The past model of simply researching, producing, and selling activated carbon can no longer meet the increasingly diverse and specialized needs of downstream customers. This has prompted the transformation and upgrading of activated carbon business models into integrated businesses encompassing R&D, production, sales, technical solutions, specific engineering applications, and after-sales services. In this context, service has become a competitive element as important as talent, technology, and capital, making brand an essential resource that cannot be ignored and gradually replacing relationship marketing as a key factor in acquiring customers. Furthermore, as activated carbon enterprises deepen their business in specialized fields, the corresponding professional technology accumulates, potentially leading to cross-industry integration and changes in enterprise positioning. For example, a production enterprise that has long supplied activated carbon to wastewater treatment plants may, after accumulating sufficient resources, develop comprehensive wastewater treatment solutions and become a professional water purification and energy-saving environmental protection enterprise. Cross-industry integration may result in significant changes in an enterprise's external positioning and identity, business and product forms, thereby affecting its enterprise value. In recent years, with industry leaders or regional leaders in the activated carbon industry listing on the ChiNext or NEEQ, these enterprises have begun to leverage the capital market to promote business diversification strategies and seek business extension along the industry chain, including vertical integration, horizontal diversification, and involvement in related businesses within the industry chain. Therefore, it is foreseeable that more and more activated carbon enterprises will list on the capital market. Facing the current limited market capacity for activated carbon and increasingly fierce industry competition, seeking industry extension through capital will be an inevitable trend.‌

‌Favorable Factors for Activated Carbon Industry Development‌

Strong Support from National Industrial Policies‌

Activated carbon, utilizing anthracite or forestry residues as raw materials and capable of being reused, holds great significance in enhancing resource utilization efficiency and reducing dependence on fossil fuels. It aligns with the nation's development philosophy of a low-carbon, green, and circular economy. Furthermore, environmental protection and governance have become another major task for China's macroeconomic growth and structural adjustment under the new normal, and activated carbon offers vast prospects in areas such as water treatment and air pollution prevention and control. Based on these reasons, the development of the activated carbon industry has received strong support from the nation's macro industrial policies. Relevant supportive policies mainly include the "Guidance Catalogue for Industrial Structure Adjustment (2016 Revision)", the "13th Five-Year Plan for the Development of Energy Conservation and Environmental Protection Industries", the "Guide to Key Areas of High-Tech Industrialization for Priority Development (2011)", and the "13th Five-Year Plan for the Development of National Strategic Emerging Industries". These policies list activated carbon and its specific application areas as industries prioritized or emphasized for development by the state. Concurrently, supporting fiscal, taxation, and other preferential policies have been introduced to practically support the operation and development of activated carbon enterprises. The strong support from national industrial policies serves as a significant driving force for industry development, facilitating sustained, healthy, and stable growth of the industry.‌

Continuous Expansion and Deepening of Downstream Application Areas‌

Activated carbon is widely used in various industries including food and beverage, chemicals, metallurgy, water treatment, and biopharmaceuticals, serving as an irreplaceable adsorbent and activator in these production processes and holding great importance for the national economy. Currently, despite structural differentiation within the "traditional application areas" of activated carbon such as food and beverage, chemicals, and biopharmaceuticals, they generally maintain a growth trend and continue to have strong demand for activated carbon. In areas such as water treatment and air pollution prevention, with the further enhancement of people's environmental awareness, the application of activated carbon in these fields is continuously expanding and deepening, not only extending into new sub-sectors but also enabling activated carbon enterprises, through long-term technical and talent accumulation, to achieve business upgrades and business model transformations in these sub-sectors. There is considerable room for growth in the demand for activated carbon in these areas. Additionally, progress is being made in the application of activated carbon in frontier fields such as natural gas adsorption, EDLC, and blood purification, with the potential for commercialization. This is expected to inject new vitality into the development of the activated carbon industry, promote cross-industry integration with new energy, new materials, and other high-tech fields, and facilitate upgrades in business forms and models, driving the industry towards a multi-layered and multi-dimensional development direction.‌

‌Unfavorable Factors Affecting Activated Carbon Industry Development‌

Low Industry Concentration and Competitive Environment Needing Improvement‌

The current activated carbon industry still exhibits low industry concentration and a competitive environment that requires improvement. Although regional and industry leaders have emerged within the industry, most enterprises are still in the initial development stage with low technical levels, weak financial strength, and inadequate talent pools, and there are very few enterprises with production capacities reaching the scale of tens of thousands of tons. Leading enterprises already possess core technologies and production processes with independent intellectual property rights, capable of producing specialized activated carbon with wide application areas and diverse performance characteristics. However, most SMEs can only produce crude or basic activated carbon as primary products, leading to a predominance of low-end products in China's activated carbon offerings, severe product homogeneity, poor quality, and disordered competition. The low industry concentration and lagging overall development level place China at a relatively disadvantageous position in the global activated carbon industry chain. Most enterprises are content with the profit levels of mid- and low-end products and lack the incentive and ability to invest in technology R&D and talent accumulation, thereby constraining the long-term healthy development of China's activated carbon industry.‌

Tightening Environmental Regulation‌

In recent years, the nation has continuously accelerated the pace of industrial structure adjustment, and the accompanying environmental regulatory efforts have also become increasingly stringent, with high-energy-consuming and heavily polluting industries gradually exiting the market. While strengthening and improving industry management norms, regulatory authorities have imposed higher standards for low pollution and low energy consumption on activated carbon enterprises during the production process. To comply with stricter environmental regulations and standards, activated carbon enterprises must either abandon non-compliant facilities, increase investments in environmental safety facilities, or improve or even change their processes, all of which will increase the operating costs of activated carbon enterprises in the short and medium term.‌

Activated Carbon ‌Industry Entry Barriers‌

Qualification Barriers‌

The downstream sectors that activated carbon mainly serves are often subject to regulation or have entry thresholds. Representative sectors include food and beverage, upstream water treatment, and biomedicine. Due to their involvement in drinking water and food safety, the production of activated carbon for these applications must possess corresponding qualification certifications and comply with relevant standards and norms for drinking water, food, and drug safety. The main regulations in these sectors include the Food Safety Law of the People's Republic of China, the Measures for the Hygiene Supervision and Administration of Drinking Water, the Classification Catalogue of Products Related to Drinking Water Hygiene and Safety, and the Drug Administration Law of the People's Republic of China. Activated carbon products for food and beverage, water purification, and pharmaceutical use in these sectors must obtain relevant administrative licenses or register and file with the competent authorities in accordance with the aforementioned regulatory provisions. Before products are launched on the market, they must undergo thorough evaluation to ensure compliance with corresponding regulations, norms, and standards. During production, qualified technical personnel, factory facilities, and hygienic environments are required, along with compliant quality management personnel, quality inspection equipment, or methods. These qualification requirements pose an entry barrier for new entrants. As China's emphasis on food safety and public health increases, the standards for qualification review will become stricter, making it more challenging for new entrants to obtain these "hard" qualifications.‌

In addition, as activated carbon enterprises continuously upgrade their business in specialized application fields, downstream customers' requirements for the technical strength and project operation capabilities of activated carbon enterprises are also increasing. Although there is currently no unified technical specification and standard across the entire industry, the formation of corresponding business norms and standards in segmented industries is an inevitable trend, gradually leading to the emergence of industry-specific business qualifications in niche areas, which also constitute an industry barrier.

Technology and Talent Barriers‌

Competition in the activated carbon industry is intensifying, with the industry undergoing significant integration and corporate mergers. Activated carbon enterprises with small production capacities, low technical levels, and the ability to produce only primary products are facing shrinking profit margins, forcing them to either exit the industry or become targets for integration by leading enterprises. Technology is gradually replacing production capacity and channels as the core competitive factor.

Due to the diverse application fields of activated carbon, the working environments and requirements for pore structure, adsorption capacity, and strength of activated carbon vary widely. Consequently, the equipment, personnel, and processes involved in the production of activated carbon products for different applications also differ significantly. Apart from basic activated carbon that undergoes only crude processing, the production and use of specialized activated carbon require enterprises to accumulate technical knowledge in the corresponding downstream professional fields and continuously develop and improve products in response to changes in the application fields. Enterprises with strong R&D capabilities and core technologies can continuously enhance product competitiveness and reduce costs, thereby increasing profit margins.

Furthermore, as activated carbon enterprises deepen their business in application fields and upgrade their business models, customers have raised higher-level requirements for their products and services. Many enterprises are transitioning from mere production and sales of activated carbon to providing one-stop comprehensive solutions that integrate product sales, facility installation or project implementation, after-sales maintenance, and value-added services. This deepening of application fields and upgrading of business models not only impose "high-precision" requirements on activated carbon products themselves but also demand higher levels of technical reserves in professional application fields from enterprises. In this process, stricter requirements are also placed on the talent pool of activated carbon enterprises. Industry talents must not only possess professional technical knowledge directly related to activated carbon but also have relevant professional skills and experience in the application fields of their products.

In summary, the gradually increasing "high-precision" technological thresholds and the compound talent pool that "connects with professional application fields" form significant entry barriers for the activated carbon industry. It is difficult for external enterprises to acquire the technology and talent reserves required to enter the increasingly specialized activated carbon industry in the short term.

Raw Material Supply Barriers‌

The activated carbon industry is resource-intensive. In the production of wooden activated carbon, forest "three residues" (residues from forestry harvesting, wood processing, and other processes) are the primary raw materials and also important fuels for cost savings by replacing coal. For coal-based activated carbon production, anthracite and coal tar are the main raw materials. Stable raw material supply is crucial for achieving continuous and stable activated carbon production, especially for enterprises with large production scales and continuous production lines. Due to the limited economic radius of forest products and raw coal, wooden activated carbon production enterprises are generally located close to forest or coal resources or important raw material distribution and processing centers to ensure raw material supply at reasonable costs. At the same time, since raw material quality significantly impacts activated carbon product quality, activated carbon production enterprises need to establish a stable supplier base and a raw material supply system tailored to their own development through long-term procurement accumulation. For new entrants, breaking into the current supply structure and establishing their own supply system poses considerable challenges. Therefore, raw material supply channels are also an important barrier to entering this industry.

Capital and Scale Barriers‌

The activated carbon industry, which belongs to the forest chemical or coal chemical industry, although requiring a relatively smaller investment scale compared to other chemical industries, still exhibits the characteristic of economies of scale common in the chemical sector. In terms of product structure, the homogeneity of mid- to low-end products is severe, making production capacity an important competitive factor. For high-end products, due to the diverse application fields, there is no universal equipment or production line in the industry, and production enterprises must purchase specialized equipment and hire professionals based on their own technology and process characteristics. Therefore, whether in terms of production capacity or production factors, the role of sufficient enterprise scale and ample capital in the operation and production of enterprises is increasingly prominent.

Most enterprises have small production capacities and weak technical strength, making it impossible for them to achieve economies of scale in the mid- to low-end product market, and they lack the ability to invest in technology research and development or the purchase of new equipment, thus preventing them from entering the high-end market. Furthermore, as regulatory authorities impose stricter environmental protection and quality control standards during the production process, the operating costs of activated carbon enterprises are also increasing, requiring investments to modify and upgrade production lines and processes, which further exacerbates the challenges faced by small and medium-sized enterprises.

Therefore, in the current context of intensifying industry competition and the industry entering a period of integration, capital and scale also constitute significant entry barriers for potential new entrants.