Sulfuric acid prices riding high into 4Q21

By: Fiona Boyd and Freda Gordon, Directors of Acuity Commodities

In the Spring/Summer 2021 issue of Sulfuric Acid Today, we discussed the recovery of the sulfuric acid market from the Covid-19 pandemic. Now several months later, key impacts remain the permanent loss of sulfur production because of the pandemic and a sustained rally in commodity prices.

In terms of the loss of sulfur production, it continues to constrain availability of the raw material for sulfuric acid producers. We previously noted around 2.4m t of lost production between Europe and the United States alone just last year compared with 2019.

While on a longer-term basis we still expect overall growth in sulfur production as new refining and natural gas processing capacity comes online, we anticipate an impact on trade flows. This is because new sources of production will be mainly concentrated east of Suez, helping offset the overall decline in the west of Suez.

There is also increasing interest in how the longterm shift towards lower carbon emissions and electric vehicles (EVs) will effect sulfur produced by the refining sector, which has historically represented around 50% of elemental sulfur output globally. Meanwhile, the EV trend continues to bode well for sulfur and sulfuric acid demand, including to support production of raw materials such as copper and lithium for key components.

Shifting back to the present, many commodity prices have remained firm in recent months. In our last article we discussed how copper pricing hit a 10-year high in February 2021. Since then, pricing for the red metal has firmed even further. We have also continued to see firm phosphate fertilizer pricing. This is in turn supporting consumption for both sulfur and sulfuric acid at peak levels.

The firm demand as well as tight supply availability for both products has of course resulted in a tick up in pricing accordingly. But with pricing for most downstream products firm, it has allowed for easier absorption of higher raw material costs.

In the acid market for example, we have seen the average Chilean spot sulfuric acid price climb in tandem with copper pricing in recent months as reflected in the accompanying graph.

In the sulfur market, the impact of lower production and firm demand for fertilizer production was apparent when the Tampa molten sulfur quarterly contract price was agreed at an increase of $96/lt, resulting in the raw material benchmark price doubling to $192/lt DEL, the highest level in almost 10 years (4Q11).

In the spot sulfur market and resulting quarterly settlements, prices have remained firm due to the snug availability. This is despite a lack of notable import buying liquidity in the key import market of China since 2Q.

Despite reduced sulfur supply, there is a notable amount of sulfur-based acid moving to meet demand in the merchant market rather than for captive consumption. In some cases, it is from atypical sources because of the favorable economics.

Meanwhile, we have seen a loss of sulfur-based supply in the UK with a closure at Runcorn with more challenging sulfur sourcing post Covid-19 a contributing factor. The loss of this supply of around 200,000 t/ yr is adding to reduced smelter acid spot exports from Europe as buyers seek alternative supply from nearby markets.

We have also seen several operational issues and even labor disputes reducing sulfuric acid production, squeezing an already tight market. This has been prevalent in North America (for example) where a smelter in Canada (Vale – Sudbury) was idled back in June due to strike action. A restart of the acid plant was expected around mid-September. In the United States, notable unplanned operational issues have been seen in part due to weather events.

In the meantime, supply options to cover these disruptions has been limited with essentially no spot supply available out of its traditional supply source of Europe. European smelters have been focusing on acid deliveries to the domestic market that saw a shortage of molten sulfur in 1H21. Smelters here have also been prioritizing product to contractual buyer in Morocco–fertilizer producer OCP.

In the world’s largest acid import market of Chile, we saw strike action averted in June that would have had a notable impact on consumption. Since then, acid prices have risen steadily with a notable amount of spot demand to cover in 2H.

Globally some buyers have tried to show resistance to the price growth. For example, we have seen a few buyers scrap purchase tenders citing high price offers. In the end, however, business is usually concluded due to lack of other options, and we have seen re-tenders attracting even higher price offers. And while some have adjusted operational rates due to acid pricing and/ or its availability, this has been relatively limited.

Also of note is the amount of forward buying to cover consumption requirements amid a tight market. Rather than looking for cargoes for prompt shipment, buyers were in the market as early as July to secure cargoes for November arrival. We also saw sales from the Far East back in May being made as far forward as for 4Q shipment with demand firm in the west of Suez while nearby markets such as India were not paying up. Over the past few months, the growth rate in CFR values in India and southeast Asia have been much slower than most other markets.

In addition to low prompt availability contributing to higher prices, market participants have been dealing with higher freight rates. As an example, freight from Japan/South Korea to Chile was within the range of $57-68/t CFR in 1Q21 before climbing to the $80s/t in May where it remained as of late 3Q. Drivers for higher freight rates include constrained cargo availability and Covid-19 impacts.

As we look to 2022 and market participants determine their strategies in a bullish market, freight will be a key component of the thought process.

We also note the ongoing gap in sulfuric acid pricing in the east of Suez versus the west of Suez with the former lagging behind in terms of pricing. This makes preparing for longer-term price discussions rather difficult for both the buy and sell sides. The gap between prices in the east and the west will likely have to close, or at least narrow, before formal price discussions can progress meaningfully. This begs the question: Will CFR prices in the east rise further, or will CFR prices in the west soften?

Looking to next year, we also continue to focus on the unpredictability of the Chinese market. This year there has been a notable amount of sulfur-based sulfuric acid moved offshore due to favorable economics. But at the same time, exports of smelter acid have been limited in part because domestic acid prices in China remain firm. For 2022, key factors will be the health of the domestic market as well as copper market fundamentals that will influence smelter performance accordingly.

Fiona Boyd, acuity Commodities Freda gordon, acuity Commodities

Acuity Commodities provides insight into the sulfur and sulfuric acid markets through price assessments, data, and supporting analysis. Offerings include weekly reports on the global sulfur and sulfuric acid markets and a bi-weekly report focusing on North America as well as bespoke consulting work. Please visit www.acuitycommodities.com for detailed information. q