Sulfuric acid market seeks balance

03 September 2010 18:57  [Source: ICB]

The volatility that has characterized the market in recent years should ease after 2010, as new supplies emerge

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Global sulfuric acid prices are stabilizing after recovering from a collapse in late 2008. The market is somewhat tight today, but looking beyond 2010, several new projects will add supplies of sulfuric acid and sulfur feedstock, leading to a much more balanced market.

Sulfuric acid is one of the most-used commodities in the world, with global consumption of more than 200m tonnes/year. Trade is limited to around 15m tonnes/year because acid is consumed at the site where it is produced, in addition to domestic demand within key markets being strong.

Europe, South Korea and Japan are the top three exporters of sulfuric acid, while China, Chile, and the Asia-Pacific region, including Australia and India, are the top three geographies for imports. Since 2008, the market has been volatile, with global economic concerns causing significant fluctuations. As the sulfuric acid market bottomed out toward the end of that year, 2009 was a year of survival, with suppliers dealing with excess product, leading to production curtailments around the world.

Sulfur is the feedstock for more than 60% of global sulfuric acid. Because sulfur is a fixed by-product of the petroleum refining process and in coal-fired power plants, it is important to remember that supply is inelastic, with higher prices failing to promote new supply.

While there has been some increase in new oil and gas plants throughout the world in recent years - primarily in the Middle East, Asia-Pacific and the former Soviet Union - leading to a moderate growth in sulfur, more recent projects, notably in 2007, failed to come on stream, leading to lower-than-expected supply.

Entering 2008, there was too little sulfur to meet demand in China and the global fertilizer industry. The price rises that began in mid-2007 continued. Vancouver sulfur in July 2007 was $50-135/tonne FOB (free on board) and reached record levels of over $800/tonne in September 2008.

The fertilizer industry was willing to pay the high costs for sulfur as it, too, was experiencing a wave of price increases, with phosphate fertilizer prices soaring.

Prices for diammonium phosphate (DAP), the most widely traded fertilizer product, climbed from over $400/tonne in mid-2007 to over $1,200/tonne by mid-2008. Then a collapse followed in the latter half of 2008. The main cause of the rise was the main reason for the downward spiral: China.

The Chinese government imposed taxes on exported fertilizers, leading to a significant decrease in China's sulfur imports beginning in August 2008. A worldwide collapse in demand followed at the end of 2008, driven by the global economic downturn, destroying demand for fertilizers and base metals.

The impact of these factors led to sulfur prices collapsing to around $40-50/tonne FOB by December 2008. In retrospect, 2008 may well be assessed as an unprecedented deviation from the norm. The collapse in demand in China affected sulfuric acid there, while the significant decreases in base metals prices in the last quarter of 2008, and continuing into 2009, led to lower demand from countries such as Chile - the forerunner in the development of the use of sulfuric acid to produce copper by solvent extraction and electrowinning (SX/EW).

As with sulfur, prices for sulfuric acid peaked in mid-2008, with spot cargoes into the US Gulf and Chile selling for over $400/tonne. By December 2008, those prices had dropped to just over $100/tonne.

In 2009, new business was rare as the market dealt with carryover tonnage from 2008 under old contract business. The few spot sales made were generally of a distressed nature.

Suppliers and traders were under increasing pressure to move product, often at the expense of margins, at times "dumping" the acid at zero cost to the end-user.

Smelters worldwide cut production in early 2009 because of low base metal demand, which in turn caused decreased sulfuric acid production. In limited cases, production was decreased specifically because of weakness in the sulfuric acid market that led to containment issues or an inability to place product.

DEMAND IMPROVING SINCE Q4 2009
Efforts in 2009 helped balance the market and as the fourth quarter (Q4) began, demand started to improve. Production curtailments in the base metals sector were eased as metals prices began to increase and show signs of stability, increasing supply and demand for sulfuric acid - supply from smelting, and demand from leaching.

Demand from the phosphate fertilizer sector - accounting for over 50% of sulfuric acid consumption - also began to increase, as producers worked through inventory and had to produce more to refill the distribution chain. These improved conditions carried into 2010, causing prices for sulfuric acid to increase steadily.

TIGHTNESS FROM LOW REFINERY RATES
While marked improvements in several industries were seen at the beginning of this year, this was not the case for the oil and gas processing industry - the primary source for sulfur.

Refinery operation rates were down, leading to decreased availability. In February, estimated overall US refining capacity use was slightly below 80% because of decreased demand. Many facilities took turnarounds, in some cases earlier than planned, as a short term solution.

This noticeable lack of sulfur at a time when fertilizer producers, particularly in the US, were ramping up production levels, led to a spike in prices comparable to market conditions in mid-2008, though on a smaller scale.

At the end of 2008, sulfur prices were $40-50/tonne FOB - only five months after price peaks in the $800s/tonne. Prices remained at these lower levels for much of 2009.

In March 2010, Abu Dhabi National Oil Co's monthly lifting price for sulfur reached $210/tonne FOB and product from Vancouver, Canada, was being placed in the high $90s/tonne FOB. Meanwhile, prices in ever-dominating China were approaching the $200/tonne CFR level towards the end of Q1 2010.

As the second half of 2010 approached, sulfur prices began to weaken. This was primarily because of buying activity in China decreasing, though not to the extent seen when the market turned in 2008. And despite sulfuric acid prices being historically linked to sulfur in the key markets of northern Europe and the US, current supply-demand fundamentals are causing sulfuric acid prices to deviate.

The result is a price increase for Q3/second-half price contracts, despite a weaker global sulfur market. Current prices of sulfur are $90-100/tonne CFR (cost and freight) US Gulf spot and $105-115/tonne CFR Chile.

"In North America, prices and demand began a sharp rebound in [Q2], aided by healthier industrial consumption of sulfuric acid and a lack of affordable imports," said a US-based sulfuric acid producer.

Currently, the sulfuric acid market is balanced to tight. In Europe, the market is tight, with limited spot availability at a time when demand in the domestic market is improving, particularly for industrial uses such as for the production of titanium dioxide.

In East Asia, supply of sulfuric acid from smelters is tight as a result of lower levels of supply of metal concentrates, therefore decreasing metals and sulfuric acid production. In Chile, market demand is strong, driven by stable-to-increasing copper prices. This has increased demand for sulfuric acid for use in leaching.

OUTLOOK
Prices for sulfuric acid for the remainder of 2010 will depend heavily on how sustainable the strong demand for phosphate fertilizers and base metals is, coupled with what happens in the sulfur market.

Beyond 2010, the shortfalls of sulfur earlier this year, in markets such as the US and the Middle East, will become a distant memory, as new refining and other projects underway come on stream, significantly increasing sulfur availability. In the US, several sulfur prilling projects are planned, to handle surplus capacity.

There are also several sulfuric acid plants under construction or planned, mainly to serve the base metals sector. Plants are under construction in Africa, Chile, China, India, Cuba, the Mediterranean region and the US.

On the demand side, projects using leaching - requiring sulfuric acid - are slated for Brazil, Chile, Cuba, Mexico, Africa, Turkey, Madagascar, the Pacific Rim and the US.

Additional smelter capacity will be coming on stream in Peru, Chile, China, Kazakhstan and India, adding to sulfuric acid volumes. Overall, smelters are expected to run at better levels. Phosphate projects are also planned globally, including in Brazil, China, Morocco and Africa.

All this activity will prompt an increase in supply and demand, but make a more balanced market, leading to price stability.

Fiona Boyd is market analyst at ICIS PentaSul. She is a graduate of the University of Houston and joined the company in mid-2008. Based in Houston, she is the main author of World Sulphuric Acid Weekly, founded by Robert Boyd, which for over 20 years has been the ­leading independent source of information on market developments, trade and pricing in the global market.

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By: Fiona Boyd
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