OUTLOOK '18: New project startup timings to dictate global sulphur fundamentals

Author: Mark Victory


LONDON (ICIS)--With a number of upcoming expansion projects in both the global sulphur market and the major end-use phosphates market planned for 2018, fundamentals are likely to be dictated by the timings of when the various projects ramp up to full production.

The long-delayed Kashagan project in Kazakhstan has not begun exporting sulphur. The first batch of export crude oil from the Kashagan Oil Field took place in October 2016, and the site had been expected to be regularly exporting sulphur by the end of 2017, but it is yet to export a single tonne.

Kashagan is understood to be blocking sulphur, with Integer forecasting that exports will ramp up during 2018 before adding 1m tonnes/year of sulphur exports to the market once it reaches full capacity in 2019.

In the Qatar, sulphur production is expected to increase to over 4m tonnes/year by 2020, once the liquefied natural gas (LNG) expansion project at Barzan has reached its target of 100m tonne/year. Phase one of the project had been scheduled for the end of 2017, but is now not due until the end of 2018/early 2019.

In August, Muntajat (which will exclusively market Qatar’s sulphur exports from January) signed a five-year memorandum of understanding (MoU) with the company managing Qatar’s ports, known as Mwani Qatar, to ship from Hamad port to Shanghai port in China, as well as the ports of Mandra and Nhava Sheva in India.

Other ports included Sohar and Salalah in Oman and Port Dier Banji in Turkey, and the company said at the time it had plans to expand the number of destinations in the near future.

Reliance's gasification project in India will result in additional sulphur capacity from January, a company source confirmed. The additional sulphur capacity this will create is yet to be determined, but it is estimated that the capacity will ultimately increase from its current 1.1m tonnes/year to around 1.7m tonnes/year.

Because of limited domestic demand Reliance expects to eventually increase its exports to around 1m tonnes/year, with China anticipated to be its largest trading partner. Reliance currently have term contracts with traders which are due to expire in mid-March 2018.

The gasification project began in December, allowing Reliance to burn more petcoke, produce more gas, and eventually reduce their liquefied natural gas (LNG) imports to zero. There will be 10 gasifiers in total.

In the downstream phosphates market, expansion projects include OCP’s J4 expansion plans, which the company has previously confirmed are running to schedule, and the ramp up of Ma’aden Wa’ad Al-Shamal Phosphate Company’s (MWSPC) Waad Al Shamal fertilizer complex in Saudi Arabia during the first half of 2018.

OCP new granulation unit is expected to begin trial production in March 2018 a company source confirmed.

MWSPC exported its first diammonium phosphate (DAP) cargo in late-August 2017 and has an annual capacity of 3 million tonnes of DAP per year, making it one of the world’s largest DAP manufacturers. Ma’aden, Mosaic and SABIC own 60%, 25% and 15% of the project respectively.

The MWSPC expansion has already limited the availability of sulphur from Saudi Arabia and several market players speculate that once it is up to full capacity, Saudi Arabia will no longer export sulphur at all, and at least one major trader expects this to leave the sulphur market globally tight at least until the Kashagan project reaches full export volumes.

In the shorter term, attention remains focused on China where prices have been falling in recent weeks following a rapid rise during the fourth quarter that many market players characterised as a pricing bubble.  China saw high consumption throughout the second-half of 2017, but particularly from October to late-November which caused prices to jump significantly.  From 5 October-16 November, China sulphur import prices rose by 55-56%.

The strong demand was partially linked to downstream players moving some 2018 production forward to avoid a new environmental tax, which comes in to effect on 1 January, and in part due to restocking ahead of the Lunar New Year. Demand fell back once lead times meant that purchases would not arrive in time for these two purposes.

Nevertheless, with underlying fertilizer demand expected to be strong in 2018, and the global sulphur market remaining tight, some players expect prices to bottom out in the near term.

One trader said that China demand is likely to remain weak until after the Lunar New Year because India and Pakistan DAP consumption is being constrained by the approach of the fiscal year end and importers are warry of taking product before new subsidies take effect. India is a typically a major consumer of downstream China phosphates.

Austrofin Gazprom Export is yet to make a decision over product availability in the first quarter and may be forced to cancel Q1 contracts because of ongoing waterway restrictions and difficulties in sourcing railcars.

Austrofin Gazprom Export previously cancelled Q4 contracts because of low availability. Austrofin Gazprom Export is a major trading partner of OCP and if they are unable to supply in Q1 this is likely to lead OCP to seek additional spot volumes during the first quarter. This could keep the global sulphur market tight.

It is widely expected that Vancouver prices will fall at the beginning of 2018, following the downswing of spot prices in China. While Vancouver typically follows China pricing closely, this diverged at the end of 2017, as China’s downturn began once western Canada suppliers had already completed all of their end of year deals, creating a larger than typical lag.

New processing and prilling capacity is coming online in Canada once the Heartland Project is completed will shift the supply chain in the region.

Once the Edmonton Heartland Project is operational, which Petrosul is a partner in, 700,000 tonnes/year of capacity will be added to the market. The Heartland project, a planned forming facility between Inter-Chem and a Petrosul subsidiary, began construction in the fourth quarter of 2016. The facility will be just under 15km (9 miles) from Fort Saskatchewan, Canada, northeast of Edmonton and situated near the CN rail line. It will use the wet prill process, which minimises dust generation. Devco technology will be used at the facility.

Similarly to China’s pricing levels in comparison with China, US Gulf prices are expected to dip lower at the beginning of 2018. The second half of the year was plagued by extremely tight supply due to hurricane damage and lower sulphur production, leading to smaller cargoes at higher prices done toward the end of the year.