FocusIs China’s sulphur demand key to global market balance?

24 February 2012 17:06  [Source: ICIS news]

LONDON (ICIS)--A 4% increase in spot sulphur prices in China this week has left market players questioning what the increase is based on, and how big a role China plays in the global sulphur market in the first half of 2012.

This week saw the 4% rise in spot sulphur prices in China following talk of some speculative buying at $215/tonne (€163.40/tonne) CFR (cost and freight).

The increase caught some market players by surprise, particularly because it is not directly driven by downstream demand.

But it turns out that sulphur demand in China has come from speculative traders who are restocking ahead of the spring fertilizer application season and taking advantage of a recent slump in global prices, caused by weak demand in other import markets including Morocco, Tunisia and Brazil.

“To be honest [the increase in buying inquiries] may only last one to two days, or one to two weeks. I just want to do as much business as I can,” a trader source said.

Another international trader admitted that the price rise this week changed his strategy: “I was going to go short and observe the market but, [seeing what’s happening in China] I’d rather be long now.”

Bids from speculative traders are in the $210s/tonne CFR. This is at least $10/tonne higher than end-users’ ideas, underlining the continuing weakness in the Chinese sulphuric acid and phosphates markets.

Speculative buying is unlikely to be sustainable. After the spring application, the next time Chinese fertilizer producers are incentivised to produce, and hence to purchase, feedstock sulphur, will be ahead of and during the low fertilizer export tax window, between 1 June and 31 September.

Chinese phosphates producers are expected to start moving finished fertilizers into warehouses around April, prompting expectations of the first significant pick-up in sulphur demand coming in March.

In 2011, sulphur imports totalled 1.41m tonnes ahead of the low tax window (April-May), and around 3.14m tonnes during the low tax window, according to data from China customs.

Some point out that sulphur imports during this year’s low tax window could potentially be lower, because both nitrogen phosphate (NP) and triple superphosphate (TSP) will be subjected to a stricter export tax policy: an 82% tax rate in January–May and October–December, with a low tax of 7% in June–September. In 2011, both products were levied at a flat rate of 7%.

The answer to the second part of the question is that Chinese sulphur demand plays a significant role in the global market because it is the world’s largest sulphur importer nation, purchasing 9.52m tonnes in 2011, or nearly 34% of the total sulphur being traded the same year, according to ICIS PentaSul data.

And, despite a potential pick-up in Chinese demand in March, demand outside of China is expected to be slow for the remainder of the first quarter.

North Africa is still largely out of the market because of downstream and political reasons, while Brazil’s spot demand is also insignificant.

Looking ahead to the second quarter, Chinese sulphur imports will also rely on the balance of domestic port inventories, domestic elemental sulphur production, and domestic production through pyrite.

Elsewhere, the biggest unknown will be the phosphates market, particularly when major producers such as Mosaic in the US and Office Chérifien des Phosphates (OCP) in Morocco can wait until the end of March to decide whether to cut their production for the second quarter, depending on prices of di-ammonium phosphate (DAP) and mono-ammonium phosphate (MAP).

Sulphur is a raw material for the production of commonly applied phosphate fertilizers, including DAP, MAP, NP and TSP.

($1 = €0.75)

For more on sulphur, visit ICIS Pentasul

By: Freda Gordon
44 208 652 3214

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