OUTLOOK '12: North American sulphur supply likely to increase

06 January 2012 20:00  [Source: ICIS news]

By Fiona Boyd

HOUSTON (ICIS)--Increased production amid stable demand in the North American sulphur market is unlikely to dampen prices in 2012 because of a global market deficit.

Indications are that the stable demand that has characterised North America in 2011 will continue into 2012 in the absence of any significant economic downturn.

On the supply side, however, there is more uncertainty.

Oil sands producers in Canada and refiners in the US will face complex feedstock and logistical issues, which cloud the 2012 outlook.

What is clear is that more unconventional crude oil will be produced in North America, but the sulphur content and its ultimate destination are difficult to predict.

In Canada, oil sands producers are investing heavily to increase production.

Suncor expects its 2012 oil sands production to increase by 12% from its 2011 rate.

The feedstock is heavy and therefore has higher sulphur content than lighter alternatives. To enable US refiners' processing of heavy crude from Canada, additional coking capacity is being added.

The question is to what extent the new coking capacity will be utilised because of the delay in the Keystone XL Canada-Texas pipeline.

Market sources indicate that, because of refinery economics, recouping the investment in such facilities will be difficult if they are forced to run sweeter crude such as LLS or Brent. But reversal of the Seaway pipeline could help and so could increasing the amount of crude transported via rail – both of which are in the works.

Meanwhile, US refiners will increase processing of other unconventional sources, such as shale basins and production by hydraulic fracturing, which yield sweeter crude with relatively no sulphur content.

In 2012, refinery capacity utilisation is expected to improve slightly, which will also contribute to a change in sulphur supply. Recent positive employment data, which is often tied to gasoline trends, is contributing to this outlook.

On the demand side, phosphate production in the US was strong in 2011, which has resulted in continuing stable demand for sulphur and has contributed to snug market conditions.

Major phosphate producer Mosaic anticipates that high agricultural commodity prices and profitable farm economics will result in phosphate operating rates trending upwards.

Other phosphate producers in the US are painting a positive picture for themselves in 2012.

PotashCorp expects the global phosphate market to be relatively tight in the near term.

Mississippi Phosphates indicated that the global outlook for phosphates during the first half of 2012 appears strong. Agrium anticipates that phosphate supply/demand will be balanced in 2012 and is assuming a 3% compound annual growth rate in phosphate demand.

There are also consumers of sulphur in North America for industrial use, including companies such as DuPont, Honeywell and Rhodia (Solvay) for the production of a variety of speciality products, such as caprolactam.

Major caprolactam producer Honeywell acknowledges there will be a more challenging economic environment in 2012. Key economic indicators show slower year-on-year growth in GDP, but Honeywell expects its global production to grow faster than the markets it serves.

So it appears that US sulphur production will increase, despite the processing of unconventional feedstock and depending on strong refinery operating rates and heavy crude delivery to the US Gulf coast. Meanwhile, consumption should be comparable with this year's rate.

If more sulphur is produced domestically, consumption is constant and product continues to be imported from Canada, Mexico and Venezuela, there could be an increase in overall domestic supply, resulting in increased exports from the US Gulf region.

The global outlook for sulphur is for a market deficit in 2012. It is not expected that any additional supply would reduce prices, assuming the product is readily absorbed into offshore markets.

By: Fiona Boyd
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