07 October 2011 17:42 [Source: ICIS news]
By Freda Gordon
LONDON (ICIS)--The pricing direction for sulphur in the fourth quarter can go either way on a tight-to-balanced market, and ?xml:namespace>
For the fourth quarter, the market initially expected a spike in sulphur prices due to restricted supply from
A reduction of Chinese phosphate production can impact sulphur demand and hence global prices because
This year, the Chinese government extended its decision to implement a two-tier export tax system on some widely used fertilizers, including di-ammonium phosphates (DAP), in a bid to retain fertilizers in the country for the spring and fall application seasons.
Under this system, DAP exports are taxed at different rates based on seasons. A low export tax window is applicable between June and September, when DAP is taxed under a sliding scale, depending of the base price, starting from 7%.
For the remaining months of 2010, DAP exports are virtually banned under a high tax rate of 110%, in order for the country to contain DAP for domestic use.
As a result, Chinese fertilizer producers have opted for the export of nitrogen phosphate (NP) fertilizers instead, which have been taxed at a flat rate of 7% throughout 2011.
NP exports between January and August in 2011 totalled 1.86m tonnes, a huge increase from the same period a year ago at just 313,000 tonnes. Similar to DAP, NPs require sulphur as a raw material, and the increase has supported sulphur demand in
Earlier in September, sources close to the National Development and Reform Commission said the government had plans to implement new tax rates for NPs beginning 1 October - a 110% rate from January to September, and at 95% for October-December. There were also reports that a flat tax rate of 70% might apply.
These potential changes are therefore likely to restrict NP production for the remainder of 2011, potentially impacting sulphur demand on the back of expected dip in DAP exports under the 110% tax window in October.
Until now, there is still no sign of official announcements from the Chinese government on its decision, and sulphur buyers have been purchasing on a hand-to-mouth basis.
On the other hand, if NPs are being subjected to a two-tier export tax system next year, the market may have adequate time to adjust to the news, limiting its impact on sulphur demand.
Bullish traders expect Chinese demand to pick up, despite the uncertainty. Hopes are high for buyers to restock sulphur sooner rather than later for the spring application season next year, because inventories across the nine major domestic ports have averaged 1.4m tonnes in the past three months, a significant drop from the 1.8m tonne standard in 2010.
The bullish tone is further demonstrated by major Chinese trader China Oil, who bought a few spot cargoes last week at around $220/tonne (€148/tonne) FOB (free on board)
This week, Kuwait Petroleum Corporation settled fourth-quarter contracts with buyers that service the Chinese market at $210-215/tonne FOB, up $5-10/tonne from its third-quarter contracts, according to a company source.
Although the level is still below the aforementioned spot purchase by China Oil, some has interpreted the slight increase as a sign of market firmness.
The Chinese market is muted this week due to the national holidays that last 1-7 October, and all eyes will be on
($1 = €0.75)
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