The Outlook Sulphur and Sulphuric Acid monthly report forms part of the comprehensive and trustworthy coverage of the Fertilizer markets. The unbiased news and analysis includes sections on market overview, key drivers, regional updates, supply and demand outlooks as well as forecasts and any other factors driving prices. If you are involved with these or related markets, this independent and essential business tool can help you to make crucial strategic decisions. Integer Research produces the Outlook reports on behalf of ICIS.
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The Outlook Sulphur and Sulphuric Acid: Market overview
Updated to Q2 2018
Supply in the second quarter will largely depend on availability from the Kashagan Oil project. Significant supply from the facility has the ability to fundamentally reverse the supply/demand balance from short to long. The plant has the nameplate capacity to export 1.1m tonnes/year of sulphur internationally. Some sources remain sceptical about the volumes that will be available in Q2 given the long-delayed nature of the project. The first batch of export crude oil shipped from Kashagan in October 2016, itself after suffering several delays.
Production of export sulphur from the Kashagan Oil Field has begun and regular export volumes are now expected, a source familiar with the situation said last week. Around 143,000 tonnes of test volumes were exported from Kashagan from November to mid-February, according to a February North Capian Operating Company (NCOC) press release. NCOC is the Kashagan development consortium’s representative. Partners in the consortium are KazMunayGas (16.88%), Shell (16.81%), Total (16.81%), ExxonMobil (16.81%), Eni (16.81%), CNPC (8.33%) and Inpex (7.56%). Each consortium member will be allocated a share of the product to market individually as they see fit.
Although peak season demand is approaching, China buyers are instead working down inventories in the expectation of further price erosion. Coupled with this, downstream phosphate buyers in India are also working of inventories, which is further limiting China consumption. India sulphur buyers, meanwhile are well covered with stocks into April.
While a bounce-back in China consumption is expected at some point in Q2 because of the peak season in demand, how late in the quarter this occurs is likely to dictate the direction of prices, at least in the short-term. The rollercoaster nature of China prices since Q4 2017 has seen a spike in rolling 12-month China volatility to its highest level since end-June, according to ICIS analysis.
China buying patterns are mirroring downstream India phosphates buyers – their main trading partner – who are also running down inventories rather than making fresh purchases. Price expectations from phosphate fertilizer producers remain lower than current levels, suggesting downward price pressure will remain a feature of both the domestic and import markets moving into April.
The switch to a sweeter crude mix as well as ongoing refinery shutdowns has seen the market tighten moving into quarter two. Nevertheless, global sulphur prices are falling. Although European price movements are typically isolated from price movements elsewhere - because while in other regions sulphur predominantly serves the fertilizer markets in Europe it typically serves caprolactam – sharp global movements in either direction do have a knock-on effect. Sharp price rises in China prices in Q4 dominated Europe contract discussions at the time, and the current falls in China prices are having a similar effect moving into Q2.
Nevertheless, uncertainty over available volumes from the Kashagan Oil field in Kazakhstan is confusion the picture. Significant supply from the facility has the ability to fundamentally reverse the supply/demand balance from short to long. The plant has the nameplate capacity to export 1.1m tonne/year of sulphur internationally. Some sources remain sceptical of the volumes that will be available in the second quarter given the long delayed nature of the project. The first batch of export crude oil shipped from Kashagan in October 2016, itself after suffering several delays.
Production of export sulphur from the Kashagan Oil Field has begun and regular export volumes are now expected.
Russia is expected to begin exporting material again from May. Russia's major trading partner is North Africa, where OCP is the dominant player. There was talk that OCP will bring up its J4 phosphate unit in the coming weeks, but the company could not be immediately reached for confirmation and other sources did not expect the unit to come fully onstream until the third quarter. OCP’s stock levels are understood to remain relatively high following the port disruption, which delayed arrivals, resulting in them remaining inactive in the market. When OCP's J4 unit does come onstream it will increase demand in the market.
Supply in Q2 is expected to be less strained in North America. Refineries will be running harder and therefore producing more sulphur. Suppliers anticipate sending more tonnes offshore from the US Gulf. The turnaround at Canada’s Syncrude should be finished midway through May, bringing production in western Canada back closer to normal levels.
Q2 demand should pick up after multiple holidays in different regions slowed the sulphur trade. Major phosphates demand will begin to pick up, bringing sulphur demand along with it from Vancouver and California. Brazilian buyers have been on the sidelines in recent weeks, but demand is expected to recover moving in to April due to the spring peak season.
Updated to Q2 2018
Because of a backlog of contractual commitments, and players, particularly in Chile, booking spot volumes further ahead, supply is expected to remain tight until at least the third quarter of 2018. Korea-Zinc is sold out of material until at least the end of June. PASAR’s smelter in the Philippines remains under force majeure, which began on 8 January because of typhoon damage.
In China, weak domestic demand resulting from low operating rates at downstream compound fertilizer units could encourage higher export quantities in the second quarter. Consumption from Chile and India, meanwhile, is expected to remain firm because of high copper prices and the approach of the typhoon season respectively.
European spot supply is expected to remain tight until at least Q3 because of the backlog created by a heavy maintenance schedule in 2017, coupled with a continued focus on domestic contract markets and players booking volumes further out to ensure availability. European producers were targeting Q2 price rises of up to €10/tonne by early April because of a combination of ongoing supply shortages and a weaker US dollar. Some buyers warned that a continual push for quarterly contract price rises may result in the opening of future arbitrage opportunities and a shift away from European supply. Nevertheless, global markets are expected to remain short of product until at least Q3, limiting the opportunities for arbitrage. Low vessel availability is putting upward pressure on freight prices from Europe, and causing difficulties in sourcing ships, traders said.
Traders and buyers are becoming increasingly concerned about the security of supply in 2018, with some sellers saying they have been asked to delay deliveries to some customers to ensure greater stock availability throughout the year. In addition, higher base metal prices relative to the same period in 2017 continue to encourage run rates in South America. India is entering the peak downstream demand season. Despite rising demand, low availability means that spot deals are expected to remain few and far between from Europe in Q2.
Supply is likely to remain short, in line with the rest of the world, during Q2. Cargoes being brought in from offshore on a spot basis will help the fundamentals from moving further out of balance. Sulphur supply is expected to loosen as well, which will bolster sulphur burner acid production.
The outlook for demand in comparison to Q1 is somewhat unclear, because Q1 saw abnormally strong demand. However, demand will certainly remain strong on the back of the AS plant coming online in Illinois, along with the fact that many US suppliers are already sold out for the year.
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The Outlook Sulphur and Sulphuric Acid news & analysis
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The Outlook Methodology
About The Outlook Sulphur and Sulphuric Acid
Sulphur is used in fertilizers, normally in the form of ammonium sulphate, where there is a deficiency of sulphur in the soil.
Sulphur is also used to make sulphuric acid from sulphur dioxide. Sulphur dioxide is used to make dyes and as a bleaching agent.
Sulphur has a pale yellow appearance and has a slight odour of rotten egg. It is insoluble in water, but soluble in carbon disulphide.
It is found in meteorites, volcanoes, hot springs, and as galena, gypsum, Epsom salts and barite. It is also a minor constituent of fats, body fluids and skeletal minerals.
There are two key sources of processing sulphur. The first is the Frasch process, where sulphur is extracted from underground without mining it.
In the Frasch process, underground deposits of sulphur are forced to the surface using superheated water and steam (to melt the sulphur) and compressed air. This gives molten sulphur, which is allowed to cool in large basins. Purity can reach 99.5%. The process is energy intense.
Another source of sulphur is as a by-product of processing crude oil and natural gas, which contain hydrogen sulphide. It is produced in crush lump, flake and prilled form.
Key industrial uses of sulphur includes production of black gunpowder, asphalt, vulcanisation of natural rubber, as a fungicide and as a fumigant, use in the bleaching of dried fruits and for paper products.
A key use of sulphuric acid is for the production of fertilizers. Other uses include the production of carbon disulphide, sulphur dioxide and phosphorous pentasulphide; pulp and paper; and rubber vulcanising. Sulphuric acid can also be used in its diluted form as battery acid for the automotive sector.
Sulphuric acid is colourless in appearance and of an oily liquid consistency. It is both corrosive and toxic and has the ability to cause serious burns. In addition, it is harmful through inhalation, ingestion and through skin contact.