OUTLOOK '14: North American sulphur prices headed up for now

27 December 2013 21:24 Source:ICIS News

HOUSTON (ICIS)--The North American sulphur market will likely see price increases in Q1 2014 reflecting tightening in the international market. Whether these increases are sustainable is an open question, as there are concerns about unpredictable speculator activity in China and whether phosphate prices will continue to recover.

One known going into 2014 is that sulphur production is up in the US. According to the United States Geological Survey (USGS), production through October has increased 10% from 2012. Shipments are up 8% and stocks are up 19%.

US Gulf exports are also up, expected to total approximately 788,000 tonnes in 2013, an increase of 12% from 2012. December is projected to have the most exports of any month this year at 152,000 tonnes. The Gulf of Mexico has taken on an increased role in the international market this year, and exports in the region are up from only 390,000 tonnes in 2011.

Prices in the US have also increased recently, with the US Gulf at $95-100/tonne FOB (free on board) as assessed by ICIS, up from prices around the $60s/tonne FOB during the summer and fall. The California ex-refinery spot price has also increased to $40-60/tonne FOB from $0-20/tonne last month.

The large increases have reflected the international market, where prices have skyrocketed in China due to ongoing production problems in the Middle East. Some international sources have categorised the increases as purely supply-driven and potentially a bubble that is about to burst. However, others think the higher prices might be more sustainable.

US year-to-date elemental sulphur imports are 2.1m tonnes, in line with 2012. The vast majority of the imports, 1.8m tonnes, come from Canada. Mexico has sent 165,000 tonnes, and Venezuela has sent 70,000 tonnes.

The Canadian sulphur market has seen a recent recovery, also reflecting international conditions. After bottoming out over the summer, the Vancouver spot market seems to have recovered to the $100-110/tonne level, with higher offers also heard. The Q1 2014 contracts are expected to rise significantly from the $60-70/tonne FOB level agreed for Q4 2013.

Vancouver exports have increased, with year-to-date exports for 2013 at 2.3m tonnes, up from 2.1m tonnes exported through October 2012.

Australia has received the most exports in 2013 at 786,000 tonnes, up from 448,000 tonnes received through October of last year. China was the leading importer from Vancouver last year, with 941,000 tonnes received through October. The country is down to 589,000 tonnes through October this year.

The increase for Australia is due to demand for sulphur for sulphuric acid leaching projects to extract nickel. China has decreased sulphur imports by 8% across the board this year largely due to lower phosphate demand from India, and imports from Canada have fallen even more due to increased availability from closer producers such as Kazakhstan, South Korea and Iran.

Total production is in line with last year through August in Western Canada, production from gas plants is up through October, and production from oil sands is up through September.

The international phosphate market will help determine North American sulphur prices going forward. There are some expectations that Indian phosphate demand will increase after high stocks this year kept imports low, spurred by a healthy monsoon season and lower inventories.

However, some sources have also expressed concerned about the Indian political situation, the stability of the country's currency and the buying power of the market. As the global leader in phosphate demand, the consequences of the Indian phosphate price will reverberate through the international phosphate market and the upstream sulphur market.

Activity in the phosphates market in the US is expected to pick up in Q1 following a successful application and fall season. Benchmark Tampa diammonium phosphate (DAP) prices seem to have stabilised, and there appears to be enough DAP and monoammonium phosphate (MAP) demand in Latin America and Australia to support higher prices. In the domestic market, buyers are expecting a strong spring season and have started making purchases out of terminals.

The higher prices in the phosphates market may mean the recent rise in the North American sulphur price is sustainable, as phosphate producers can pass on the increased costs. However, there is still concern over how quickly the price has risen, as well as questions about the role of Chinese speculators within the sulphur price.

Sources have said that part of the recent international increases is due to speculators driving up the price, and what role they will play in 2014 is uncertain.

For North America, prices are expected to increase in Q1, but how long they stay up is still an open question waiting for an answer from the international market, with India and China two areas to watch.

By David Tonyan