OUTLOOK ’19 INTERACTIVE: China demand to continue driving global sulphur prices

LONDON (ICIS)–Although global spot sulphur supply is structurally tight, China is expected to remain the control valve of the market in 2019 as the relative strength of its demand will largely dictate global prices.

Global spot sulphur supply is tight because of a shift to a sweeter crude mix, lower volumes out of Saudi Arabia due to increased domestic consumption, and ADNOC contracting an increased portion of its sulphur supply to OCP.

Coupled with this, the first quarter typically sees limited tonnes through the Black Sea because of restrictions in Russia’s waterways, and there is a heavy turnaround schedule at European refineries likely to result in more limited supply.

Nevertheless, the approach of International Maritime Organization (IMO) 2020 regulations for shipping, expected to reduce demand for sulphur, and the uncertainty surrounding how shippers will comply with the regulations has made supply levels throughout 2019 difficult to forecast.

If shippers predominantly chose to use scrubbers to comply – which extract sulphur from the fuel – this will increase global supply significantly.

If, however, shippers choose to switch to blended fuels to comply, this will encourage a further and more permanent shift to a sweeter crude mix, resulting in sharply lower sulphur production.

ICIS’ seasonality analysis suggests that China arrivals typically fall sharply in January, and reach their nadir in February, with the first quarter being the weakest of the year.

Imports historically remain weak throughout the first half of the year.

This follows on from typically the strongest quarter for arrivals of the year – the fourth quarter, with September, November, and December historically the three strongest months of the year – despite a sharp drop in arrivals in October.

The fall in imports at the start of the year usually corresponds with below-average prices, which typically recover in March.

Nevertheless, prices are historically only marginally below average, implying the relative strength of demand compared to normal trading patterns becomes increasingly crucial at the start of the year.

This is clearly shown in the below price seasonality graph, which shows an average weekly index of ICIS’ China sulphur import price strength since 2000, using yearly price averages as a baseline.

Anything above 1.0 means imports are typically above the yearly average that week, while anything below means that imports are typically below.

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China demand is not expected to follow typical trading patterns in January.

The majority of China buyers have not been active in the market since the Golden Week holiday period at the start of October due to uncertainty over the evolution of the downstream phosphates market.

As a result, most are yet to cover themselves for the Lunar New Year holiday period in February.

Market sources estimate that orders most be completed by mid-January for volumes to arrive on time, and buyers are expected to return to the market imminently as a result.

The price seasonality graph shows that the period from late-June to October is typically the weakest period of the year for China sulphur import prices.

The major end-use market for China sulphur buyers is Indian diammonium phosphates (DAP), for use in fertilizers production.

During the summer months, India DAP buying is limited by the monsoon season, as rainfall slows fieldwork. This typically lasts from June-September.

Although China sulphur imports begin to rise again in September, prices historically have not started to rebound until October, once the strength of the returning peak season is known.

February import levels fall sharply, as this is typically the Lunar New Year period, and subject to a wind-down in May ahead of the Indian monsoon season.

China is one of the largest spot sulphur consumers globally, and the major trading partner for the key Middle East export market.

In 2018, global prices ebbed and flowed in response to China consumption levels, with periods of low demand overwhelmingly counterbalancing supply shortages and causing prices to fall.

Conversely, whenever China demand increased, demand rose.

Focus article by Mark Victory