The sulphur market has been incredibly volatile over the last three years with changes in trading patterns and trade flows, as well as a series of unfortunate supply outages causing prices to spike in the fourth quarters of 2017 and 2018.
But since October 2018, sulphur prices have been on an almost consistent downwards price trend. For example, China’s top-end granular cfr price lost $124/t between 18 October 2018 and 19 December 2019.
There are several factors that have contributed to sulphur prices falling to 10-year lows but two key elements are the developments in the Chinese market, with China being the biggest sulphur importing country taking receipt of 10.9mn t in 2018. And prices in the phosphate fertilizer market have been falling for around 17 months as nearly 60pc of global sulphur consumption is used for the production of fertilizers — and of that 60pc, around 90pc is used for the production of phosphoric acid.
Chinese consumers have been striving more and more to secure direct supply contracts with sulphur producers. First direct contracts were signed in 2017 with Canadian producers, but by early 2018, direct contracts between Middle Eastern producers and Chinese consumers were signed. Admittedly this new supply dynamic did not have the immediate effect Chinese consumers wanted, which was to help keep prices stable, if not soft.
But as time has progressed it has been notable that more producers, particularly in the Middle East, have agreed to such contracts and have increased the volumes they are supplying under these contracts. They are now allowing key consumers in the Chinese market to have a consistent volume of sulphur arrive for consumption every month and these tonnes are providing a buffer for the receiving companies allowing them to enter the spot market more strategically.
Whereas once upon a time, we would have seen Chinese consumers step in to the market all at once, causing major fluctuations and many spikes in pricing.
A huge Chinese market fundamental that also needs to be discussed and is impacting the market is China’s port inventories. They hit a six-year high of 2.1mn t in July and have since done nothing but rise, with official figures pegging them at 2.72mn t on 17 December, and market participants at 2.75mn t on 19 December, with full expectations that more growth is on the way. Most of these inventories are being held in the river ports as this is where large portions of trader owned stocks are held.
Stocks started to pick up in July as speculative traders stepped in to the market in April-May for July deliveries, anticipating a seasonal recovery in sulphur market prices and demand. Since then, the market has done nothing but weaken, so volumes have built with many suppliers reluctant to sell tonnes that are priced significantly higher than the following trading values.
These volumes are also providing a good, consistent supply source to consumers in the river area, allowing phosphate fertilizer producers in particular to buy small hand to mouth parcels and keep out of the cfr import market almost completely. And as the inventories have done nothing but grow since July, pressure is being put on the domestic ex-works prices, which dropped by 397.50 yuan/t (56.74/t) between 4 July and 21 November, on a mid-point basis, when the ex-works price hit its lowest since the Argus price assessment began in July 2013.
Those who hold high priced inventories and can afford to wait to sell when prices improve are doing so, further exacerbating the inventory problem and keeping Chinese traders out of the import market as they have enough unsold high-priced sulphur on their hands to want to try to buy any more.
The phosphate market has been in a period of depreciation and on the downwards price trajectory since July last year. This is thanks to a perfect storm of factors including oversupply, poor harvests and lower farmer income, to name just a few. These have led to a lower level of general utilisation and demand for phosphates. And where demand has remained, very low price expectations have been in play. India’s DAP cfr price for example, dropped by $133.5/t on a mid-point basis between 5 July 2018 and 19 December 2019.
The poor finished fertilizer market conditions have therefore had several knock-on effects because, as mentioned above, around 60pc of global sulphur demand is for the fertilizer market.
To look in more detail at the phosphate market impact, Chinese producers in the so called 2+6 group announced in July that they would cut production capacity by 40pc for a three-month period, which has since been extended to the start of 2020. This action has the potential to remove 870,000 t/quarter of sulphur demand from the Chinese market, which would help account for the lacklustre activity and increasing inventories we are seeing in the country.
But it is not only in China where the finished fertilizer market has forced production curtailments and reduced sulphur consumption. In North America, US-based fertilizer producer Mosaic idled operations at its Faustina phosphates complex in Louisiana on 1 October, reducing total US domestic production by 500,000t, which came three months after the company formally closed its Plant City facility in Florida, nearly two years after ending operations there.
And on 19 December it was reported that the company will curtail phosphate production at its central Florida facilities in 2020 after restarting the Faustina facility. Central Florida production will decline by 150,000 t/month, with current market conditions behind the company’s decision. These curtailments are reducing demand across the North American sulphur market.
In part two, fundamentals beyond China and the phosphate market will be discussed as factors that have contributed to sulphur prices falling to 10-year lows.
Argus White Paper: Key NPK trends in 2019
Several key trends emerged in the global NPK market in 2019. Governments played a key role in the market, as changes to import and export legislation in major producing and consuming countries disrupted long-established trade flows. Download here