North American sulphur prices fall ahead of contract season

Focus story by David Tonyan

HOUSTON (ICIS)–North American export markets have followed international indicators as prices fall on muted demand for spot cargoes before the fourth quarter sulphur settlement negotiations, as assessed by ICIS on Thursday.

US Gulf export prices have fallen to $140-145/tonne FOB (free on board) and Vancouver export prices have been reduced to $150-155/tonne FOB.

Preliminary pricing in California for October has also tumbled $10/long ton ($9.84/tonne) to $70-80/long ton ex-refinery, a source said this week. Not all contracts have been completed for the next month.

The declines are due to muted demand for spot cargoes ahead of contract season and plentiful supply in the North American markets. There may be room for further decreases with Chinese stocks at their highest level of 2014 at 1.69m tonnes.

It was widely expected in the international market that prices had bottomed out following decreases by Middle Eastern producers for September and October to the narrow range of $151-155/tonne FOB Middle East. Downstream phosphate demand is running well in China and increased diammonium phosphate (DAP) demand from India is expected following monsoons season, suggesting there is underlying strength for international demand for sulphur.

However, the high inventory levels at major Chinese ports may create more downward price pressure.

The North American markets are also well-supplied. Canadian production levels have been healthy, albeit slightly decreased from 2013. Vancouver exports have fallen significantly, more steeply than production due to Chinese importers moving towards Middle Eastern producers.

US production has been up approximately 10% each month this year due to strong refinery rates. Increased US Gulf export numbers have kept the market in balance but the region is balanced-to-long, as spot decreases reflect.

Strong production and declining export pricing suggest a favourable environment for buyers going into contract negotiation season, which is underway in the major international markets outside of the US.

Negotiations have yet to begin for the quarterly Tampa sulphur settlement, a source confirmed last week. While most sources expect a decrease, the third quarter agreement at $136/long ton DEL (delivered) Tampa was already lower than current US Gulf spot levels at $140-145/tonne FOB, which may limit the level of decline that is achievable.

Third quarter contracts ex-Vancouver were settled at $160-170/tonne FOB, prices above recent spot activity. Producers expect prices to start rising again in the next month. However, international demand is unlikely to increase if Chinese stocks do not decrease, and it is unknown if they will move down within the next month.

For now, US Gulf and Vancouver export prices are catching up with the international decreases over the last month. While it is unlikely an international recovery is imminent, producers believe a turnaround will come before the end of the year.

Whether conditions improve before the settlement remains to be seen.

Additional Reporting done by Julia Meehan

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