OUTLOOK '18: Sulphuric acid supply may remain tight through first half of the year

08 January 2018 10:00 Source:ICIS News

LONDON (ICIS)--Although supply in 2018 as a whole is not expected to be as tight as it has been during 2017 because of a less intensive smelter maintenance schedule, several players expect at least the first half of 2018 to remain tight, and there is near universal agreement that spot shortages will continue throughout the first quarter.

There has been a heavy smelter maintenance schedule during 2017 and this has kept supply tight throughout the year and caused prices to broadly trend upwards. This was particularly true in Asia, where there was additionally a back-log of orders held over from 2016.

Nevertheless, because so much maintenance was undertaken during 2017 this has meant that the 2018 maintenance schedule is, so far, less intensive than typical.

Expectations of how long tight supply will last have increased in the final weeks of December because of a spate of industrial action in Chile and Peru which has led to increased demand from the country.

Workers at Enami’s Piapote copper smelter began industrial action on 13 December. Workers at Southern Copper’s Toquepala, Cuajone, and Ilo smelters in Peru are understood to still be striking.  Teck’s Quebrada Blanca copper mine in Northern Chile saw industrial action from The Union of Workers of Quebrada Blanca on 13 December, which is one of three unions at the site.

Quebrada Blanco’s supergene deposit has been exhausted and production was already at reduced rates as a result, with production at the mine not expected to continue beyond mid-2019 dependent on copper prices and cost reduction efforts.

High copper prices throughout 2017 have led to Chilean mines running as hard as they can. Copper prices have increased by more than 50% in the past 12 months. The 2018 deficit in Chile is expected to be at least 2.1m tonnes, with some sources predicting it much higher.

Coupled with this, Goldman Sachs is forecasting a global copper deficit in 2018, forecasting it will keep copper prices high.

Chile 2018 annual sulphuric acid contracts have more than doubled compared with 2017 on the back of the strong demand and tight supply. Chile 2018 contracts were agreed at $70-75/tonne CFR (cost and freight) Mejillones, compared to $27-33/tonne in 2017 levels.

Nevertheless, 2017 contracts had been agreed at a 16 year-low, meaning that 2018 contracts rose from a low base.

In South Korea some sellers expect tight supply to last throughout 2018, but particularly in the first quarter. This is not only because of high Chile demand, but also because of high buying interest from South Asia.

South Korea and Japan 2018 contract negotiations remain ongoing, Korean contracts have so far been agreed at $25-30/tonne FOB, with Japanese producers understood to be targeting prices at around $20/tonne FOB. Japan prices are below Korea because of higher freight costs amid port restrictions.

Across Asia, China remains the only country understood to have significant sulphur availability.

Nevertheless, during the fourth quarter China exports fell back sharply because a spike in upstream sulphur prices meant that exports were unworkable. China typically produces sulphuric acid from burning sulphur rather than smelter sulphuric acid.

China sulphur import 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.

India buyers and sellers remain far apart on contract negotiations, with buyers targeting $30-40/tonne CFR (cost and freight) and producers targeting prices at $45-50/tonne CFR.

Discussions remain at an early stage and volatility in the upstream sulphur market has further delayed settlements as players are watching to see whether prices in China have much further to fall before finalising.

China sulphur import prices are also expected to have an impact on Europe Q1 contract negotiations, which are yet to begin in earnest.

European players expect sulphuric acid demand to grow by up to 10% in some sectors, such as the semiconductor market, in 2018, although more generally at 2-3% in line with macroeconomic growth expectations. There has previously  been talk that a number of new traders are attempting to enter the sulphuric acid sphere in Europe.

There were concerns that this could inflate perceived levels of demand or supply because of an increased number of enquiries detached from underlying demand, or could lead to depressed prices as new entrants seek to capture market share.

PhosAgro is planning to construct new sulphuric acid, nitric acid, and ammonium sulphate production facilities at its Cherepovets, Russia, plant, the company announced in a press release in November.

It plans to expand capacity at its Benefication #3 plant to 9 million tonnes of fertilizers by 2018, an increase of 25% from, and 9.2million tonnes by 2020 which includes new ammonia and granulated urea lines. A breakdown of the increased production by product was not immediately available.

In Morocco, major sulphuric acid consumer OCP are expected to import 50,000-125,000 tonnes/month of sulphuric acid in 2018 depending on market conditions and production needs.

OCPs new granulation unit at Jorf is planned to start trial production in March, a company source confirmed.

By Mark Victory