JAPAN DISASTER: Shutdowns cause sulphur, sulphuric acid shortages

18 March 2011 20:23  [Source: ICIS news]

LONDON (ICIS)--Disruptions at oil refineries and smelters in Japan are threatening supplies of sulphur and sulphuric acid, pressuring prices for these products, market sources said on Friday.

The earthquake and tsunami, which hit Japan on 11 March, has led to disruptions to refinery operations and their sulphur production, although the severity of the impact has yet to unfold, sources said. 

Sulphur supply from Cosmo Oil’s Chiba refinery, JX Nippon Oil and Energy Corp’s Sendai, Negishi and Kashima refineries was likely to drop at least for April, said traders who are active in the Japanese market.

“[The disaster] will have an impact on the sulphur market. In the short term, prices may be impacted due to psychological worries [of product shortage],” a source with a major Chinese sulphur end-user said.

In 2010, Japan produced around 1.90m tonnes of sulphur and exported 1.27m tonnes in the same year, according to provisional data from the International Fertilizer Industry Association (IFA).

The likely result of reduced Japanese sulphur in the market was the further tightening of global supply, in which major export markets - including Russia, Canada and the Middle East - already anticipated product shortness during the second quarter.

One sulphur importer to be hit by the Japanese disaster would be China.

Japan shipped 1.14m tonnes of sulphur to China in 2010, accounting for 10.91% of the country’s total sulphur imports, according to Chinese customs data. China could face the loss of an average 95,000 tonnes/month from Japan.

The earthquake came at a time when quarterly contract negotiations typically begin.

Current spot price levels in China were at $215-220/tonne (€153-156/tonne) CFR (cost and freight), netting back to $180-190/tonne FOB (free on board) Middle East.

This compared to first-quarter contract prices in the $170s-180s/tonne FOB.

If Chinese buyers need to compensate for any potential loss from Japan, producers from other regions will likely target an even more aggressive increase for the second quarter.

“With the explosion and fires at refineries, I think one month [of interruption] is extremely optimistic. With all the rebuilding being required [for some refineries] it could be years before some are operational. As a result, we're seeing increases already in [sulphuric] acid [demand],” a major Canadian sulphur supplier said.

The situation in Japan has already affected the downstream sulphuric acid market, although the level of impact is still being assessed.

Japan is among the top three exporters of sulphuric acid, produced as a by-product of the smelting of base metals, primarily copper.

Overall, around 25% of Japan’s refined copper production capacity was down, according to media reports.

In 2009, Japan exported 2.5m tonnes of sulphuric acid, or 19%, of the global total of around 13m tonnes, according to data from IFA.

A possible outcome of this was for sulphuric acid importers to increase sulphur consumption. This would allow the importers to raise their own acid production, in order to keep up with downstream demand.

This has already been seen in China this week. Two Lions in Zhangjiagang has bought 15,000 tonnes of granular sulphur at an equivalent of $203/tonne CFR.

Further down the production chain, sulphuric acid is a raw material for phosphate fertilizer production. However, the direct impact on this front seems less significant so far.

“Japan [as a fertilizer market] is not that significant,” said one major US phosphate producer.

US phosphate producers have contractual agreements with Japan.

Over the 2008-10 period, Japan averaged around 120,000 tonnes/year of monammonium phosphate (MAP) imports plus 250,000 tonnes/year of diammonium phosphate (DAP) imports.

Most of this is imported from the US or China. However, while significant, US DAP exports in 2010 to all destinations were 4.2m tonnes, so the Japanese market is not that vital to US interests.

“Sure it has had a psychological effect on the market – but the grain market has started to rebound already,” the producer added.

Additional reporting by Fiona Boyd in Houston and Mike Nash in London.

($1 = €0.71)

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By: Freda Gordon
44 208 652 3214

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