INSIGHT: North America sulphur tight heading into Q2

By Annalise Little

HOUSTON (ICIS)–North America spent the last month of the first quarter growing tighter in supply, as a mixed bag of market factors came into play and pulled the sulphur market in different directions.

Shake-ups in Canadian oil sands operations and interests will certainly affect the market, but the effects will not be seen immediately as parties spend the quarter wrapping up the deals.

Shell is divesting its oil sands interests to Canadian Natural Resources Limited (Canadian Natural).  Marathon Oil will also sell its Canadian subsidiary, which includes the company’s 20% interest in the Athabasca Oil Sands Project (AOSP), to Shell and Canadian Natural. Shell is the operator of AOSP.

Some market players speculated that the ownership switch could be troublesome for the under-construction Heartland prilling project, but the limited partnership said the sulphur forming facility remains on schedule to be operational in 2017. The possibility of additional capacity was also put forth, as supply commitments have gone above what the company expected.

“Accommodations in the facility’s initial engineering and design allow for the potential of increasing Heartland Sulphur Terminal’s forming capacity with the addition of another 2,000 metric tonne per day unit,” the company said.

Factors that affected sulphur pricing are more on the supply side. Earlier in Q1, the US Gulf rose into the $80s/tonne on an FOB (free on board) basis for the first time since February of 2016. A domino effect of supply tightness that began with Russia’s lack of first-quarter exports has left multiple countries needing to get tonnage elsewhere.

Prices in Canada firmed as well into the low/mid-$90s/tonne FOB Vancouver, and increased cargoes were seen moving to China, which is usually supplied largely by Russia, beginning in December. Full-year Vancouver exports data showed that exports to China for 2016 were at almost 903,000 tonnes, representing a 23% increase from 2015.

However, in the last month of Q1, with California and Vancouver set or mostly set for the next month to six weeks, stocks are low and pricing in the regions have stalled somewhat until the next round of cargoes is set up.

Softer prices in China and rising freight rates indicate that once negotiations begin for May’s requirements, California and Vancouver may be at lower levels. Prices had strengthened in February and early March. This was a result of receiving increased inquiries from China while Russia had supply issues. Gazprom in Russia experienced technical problems and was therefore unable to supply sulphur to contract partners during the first quarter.

Aside from California’s requirements being set up for the next month and therefore tight for the moment, supply will be lower in Canada due to a fire at a Syncrude operation. The company’s Mildred Lake Upgrader experienced a fire on 14 March. After it was extinguished several days later, a small portion of scheduled sulphur deliveries were being made, but that eventually stopped as well, according to market sources who receive tonnes from the operator.

It was suggested that 40,000-50,000 tonnes of sulphur could be out of the market as a result. The shortage of tonnes from Syncrude has kept export prices from slipping further. Suncor announced on 27 March that due to the fire and unplanned outage, it has advanced its eight-week turnaround for those operations that was originally planned to begin in April.

Moving forward, suppliers in western Canada are seeing a slowdown in demand from China.

The Kinder Morgan and Pacific Coast terminals in Vancouver that Sultran operates will undergo the first of two maintenances this year toward the end of Q2.

Mosaic and PotashCorp in the US will announce their Q2 Tampa sulphur price settlements in the coming weeks, which will also help shape the direction of the North America markets in April and further into the second quarter.

The first-quarter Tampa sulphur contract price increased by $5.45/long ton to settle at $75/long ton DEL (delivered), major consumers Mosaic and Potash Corp confirmed on 10 January.

The Q1 increase had been expected among some market participants following gains seen across the international spot market during the fourth quarter and some thought it would be more in the region of $8-10/tonne.

This is the highest settlement since the first quarter of 2016, when the quarterly contract settled at $95/long ton DEL. Prices surged upward at the end of 2016 as the Chinese sulphur import market strengthened significantly.