Prices for sulphuric acid across the globe began declining early in 2019, but how is the market shaping up against lockdown conditions and what is the broader picture?
Listen in as Tomas Bavington, Multimedia & Programme Manager, asks Kate Wilcock, Editor - Global Sulphuric Acid,about pricing, production, demand and the short-to-medium term outlook for sulphuric acid.
Tom: Hello and welcome to our podcast, Sulphuric Acid fundamentals Detach from Supply and Demand, I am Tom Bavington, the Multimedia & Programme Manager here at Argus Media and today I am joined by Kate Wilcock, Global Sulphuric Acid Editor. Kate, why don’t you begin by explaining the kind of trends and fundamental changes in sulphuric acid prices both currently and in the past year?
Kate: Prices for sulphuric acid across the globe began declining early in 2019, and continued to fall, nearly unabated over the following 12 months and as of early April most cfr regions are now sitting at the lowest or near lowest levels on record.
Interestingly the fundamentals underpinning the extremely low acid prices at present are not just linked to prompt demand. But certainly spot prices are struggling to find firm flooring with lockdown conditions changing daily for consumers, ports and logistics.
For the broader picture on prices - over the past year China has had a huge impact on global supply and demand, swinging from a net importer around 1 million tonnes as recently as 2018, to being an exporter of more than 2 million tonnes in 2019, and this is largely attributed to a huge expansion in China’s base metals smelting capacity.
Changes in the freight market are also impacting trade flows and overall cfr prices. An increase in stainless steel tankers in recent years and larger deadweight capacity has mostly bought down prices on long-haul routes, and a deep negative pricing on a fob basis for China, South Korea and Japan in the past few months has opened arbitrage opportunities for Asian sellers to as far afield as Morocco and North America.
Tom: So… have price decreases resulted in any changes in sulphuric acid output?
Kate: Despite the potential demand destruction facing non-ferrous metals producers, there has been little in the way of output cuts, with the current sentiment that demand, and prices will recover and stockpiling is preferable over costly shutdowns. Treatment and refining charges are hitting multi-year highs, so there is certainly encouragement to keep throughput steady.
As a result sulphuric acid supply has not decreased markedly in the past two-to-three months. Some reductions are occurring in Latin America – a key copper producing region – where government lockdowns and resulting curtailments on worker movements, have seen smelters and refineries reduce production. Sulphur-burners have reduced output, but this is normal in these circumstances.
Tom: Does this mean the big question is all around demand?
Kate: The demand destruction for discretionary buying is really the big question, that is, will recovery be a V shape or more of a Nike tick shape.
While fertilizer demand is broadly resilient there will be a drop-off in demand from non-food crops, such as corn, soy and palm oil for biodiesel, cotton for clothing and so on. The fall in demand for non-food crops is pressuring crop prices, and will have an impact on farmers’ margins and the available spend for inputs such as fertilizers. When margins are squeezed farmers will opt for nitrogen inputs and delay phosphate applications, which is significant as and phosphate fertilizers such as DAP and MAP account for around 45% of sulphuric acid demand. Lower priced inputs such as SSP and ammonium sulphate only account for up to 10% of acid demand.
But merchant acid throughput at phosphate producers who can switch between importing acid and captive burning will continue to offer a good outlet for attractively priced sulphuric acid cargoes.
In the industrial sector, demand has dropped hugely from the automotive industry – which impacts sulphuric acid consumers such as caprolactam, TiO2 and battery materials for car making components, and the decrease in private vehicle usage is denting demand for octane boosters such as alkylate. Demand from the metals leaching sector is stable at present, with most acid consuming assets reasonably mature with few new-to-market or high cost entrants. But smaller high cost leaching operations may scale back or stop if copper prices fall further.
Tom: Thanks Kate, so, one final question for our listeners, what does the near term outlook look like for sulphuric acid?
Kate: Exporter nations are receiving some benefit from local currency weakness against the US dollar and lower input costs for oil and energy are beneficial, as are lower interest rates. But for demand segments that have expanded rapidly in recent years amid high prices and a heavy debt burden, such as the battery material sector, production shutdowns project suspensions are already taking place. Demand for caprolactam and TiO2 related products have been on a downward trend for more than six months, and are among the many indicators that there are more downside factors at play than the coronavirus. But numerous sulphuric acid consumers are non-discretionary such as water treatment, pulp and paper, and to a smaller extent plastics, rubber and detergents. So some baseline demand will be maintained.
Tom: Thank you very much Kate and thanks to everyone who joined us. Remember you can find more of our podcasts at www.argusmedia.com/podcasts.