Podcast: Covid-19: Hitting the sulphur market from all sides

Author Claira Lloyd, Editor

Learn what Covid-19 means for global supply/demand of the sulphur market.

Tune in to Claira Lloyd, Editor and Sulphur Fertilizers Team Leader, as she provides an update on the global sulphur market amidst the coronavirus pandemic.


Hello, and thanks for taking the time to listen to this podcast. I'm Claira Lloyd, Argus sulphur editor and sulphur fertilizers team leader. I'm going to talk to you about how, at this point in early April, COVID-19 is hitting the sulphur market from all sides. Sulphur's rather unique position as both a by-product and a raw material means that its upstream and downstream markets are feeling the hit from the spread of the coronavirus, as well as the measures that are being put in place to curb further infection.

So, over the next few minutes, I'm going to discuss with you just how the sulphur market is reacting. Of course, we all know that the virus first burst into our lives in mid-January, with the outbreak in Wuhan, China forcing a long extension of the Lunar New Year holiday, and following that, reduced business, as lockdown measures were imposed and spread across the country.

With China being the world's biggest sulphur buying country, this caused concern across the market, as if China's doors all but closed, and sulphur consumers operating at very low rates, if at all, sulphur supply would follow. But, with just one country on lockdown, even though it was China, the sulphur market did not suffer the price hit at all, because of supply side issues in the U.S. and Middle East in particular, which prevented market balance from tipping into oversupply.

In fact, because of the complete absence of business and balance in the broader market, prices in China held flat on a CFR basis for granular sulphur, at $64 a ton, for seven weeks. When China commenced its wake-up and reemergence from what the rest of us are now experiencing in an effort to curb the spread of COVID-19, demand picked up, and with it, prices, as the supply balance remained tight at a point when Chinese fertilizer producers had to make up for lost time to fill orders for the current spring application season.

Yet China's appetite has now shrunk once again, as the country contends with the fallout of the virus spreading globally. And now that's where I want to take you, to look at how COVID-19 is hitting the global sulphur supply and demand market.

And to kick off, I'm going to chat briefly about the demand side. The lockdown of India for three weeks as of the 24th of March, in hand with South Africa, hit market sentiment immediately. The two combined imported an average of 162,000 tons a month of sulphur last year, with South Africa a key logistical hub to get sulfur up to the DRC, and the copper belt in particular.

Now, with a three week, at least, lockdown in place in both countries, there is a basic expectation that sulphur deliveries to these key importers will all but stop. And this is particularly true of India, as since early March, sulphur consumers IFFCO, PPL, and CIL have been holding planned maintenance works, which are due to come to an end this month, bringing with it, hopefully, the return of sulphur demand.

Now, in fact, most of these key sulphur consumers, as well as others, such as FACT, commenced a full shutdown of their fertilizer production operations for unspecified periods, in a reaction to the lockdown, which has pretty much removed India's demand for sulphur in the near term.

In Europe, where sulphur is broadly used in the chemicals industry, rather than fertilizers, already lower levels of demand are noted, particularly as there is low demand for products like caprolactam, and logistics are difficult.

In West Europe, where sulphur is consumed and transported in molten form, it is particularly so. Delays at customs borders because of lower staffing levels, and strict checks to help curb the spread of the virus across borders, is causing concern that rail tanks will not be sufficiently able to keep the molten sulphur at 180 degrees centigrade the entire journey. And, with minimal remelter capacity in Europe, the product will not be able to easily be remelted for use.

Yet, with other businesses still operating, such as those in the pulp and paper sectors, there should be enough sulphur, as non-essential industrial consumers lower demand and free up terms, which has consistently been leaning on the dangerous side of tight for several years in the region.

Flitting back to North Africa, and it's important to note that even though the number of cases is lower than North America and Europe in particular, operations in the mining sector have taken measures against further infection, halted completely in many instances, with Madagascar's Ambatovy and Namibia Skorpion Zinc clear examples of this.

With these consumers out of the picture, while not earth-shattering, it is freeing up terms which would otherwise have found homes on the continent. But so far, fertilizer sector demand in Africa has not been hit by the fallout of COVID-19.

Moroccan fertilizer giant OCP, like its peers U.S-based Mosaic and Russia's PhosAgro, were, at the time of recording, still operating at relatively normal levels. Indeed, it is clear that these sulphur consumers will have to constantly monitor the ever-evolving nature of this illness and the impact on their own countries.

Yet the concern seems to rest at the moment more on the logistic side of things. Whilst operations are currently as they are, if raw materials can't be loaded, shipped, and discharged in a timely fashion, and finished products too, for that matter, then there is a strong possibility that key consumers, like these fertilizer producing giants, will be forced to lower operational rates, leaving sulphur without a home.

But demand cuts already seen and potential are being to an extent balanced out by what's happening on the supply side. And I'll start with the U.S. With countries on lockdown, domestic and international travel at a minimum is taking the demand for refined products with it, such as jet fuel and diesel.

In the U.S., this is leading to some refiners to lower operational rates, and indicate in some instances that sulphur production will be reduced by 10% to 15%, or possibly even 20%, on production levels which are already reduced across the country, as refinery turnaround season and measures implemented to help comply with IMO 2020 sulphur regulations had already cut sulphur production.

The same is also true for Europe and the Mediterranean. Refinery run rates are being reduced across the board. Storage tanks for refined products are nearing capacity, and new sales are low. This is once again reducing sulphur production in a region which, as mentioned earlier, has been on the tight side for a while.

Looking over to Asia and India, whose lockdown first sent the sulphur market into a bit of a tailspin, there, refiners are in some instances lowering operational rates, with MRPL for example now running at just 30% of capacity. Yet, with the majority of fertilizer producers and key sulphur consumers totally shut down for the time being, there are no domestic sulphur deliveries to be made.

This is forcing key sulphur producers to rely completely on the export market to get rid of the product they produce. Already, MRPL has in fact come to the market with a 10,000 ton export tender.

In the Middle East, however, it's a different story, as key suppliers and producers there, such as UAE's ADNOC, rely on natural gas processing to produce their sulphur, rather than oil. And with gas used for other purposes, such as power, so far, those producers have not seen a direct impact on sulphur production in relation to COVID-19, and are not so far forecasting reduced operational rates, like the oil refiners. But of course, what can't be ignored on the supply side, just like the demand, is that logistical issues could soon come, and this could impact runs heavily, and the virus could halt false halting in operations.

So, in a nutshell and to conclude, reductions in supply and demand are happening, and expected to worsen going forward, and logistics continue to be a major concern as the number of infected grows and lockdown and prevention measures become more strict.

Already, the supply side is feeling the hit of COVID-19 pandemic seemingly more than the demand, with oil product demand low. But it does seem to be only a matter of time before the demand side is forced to follow suit, and lower operational rates more broadly, even in key consuming industries like fertilizers.

So, in the near term at least, there are expectations that sulphur trade could well continue, but be it to just the best of the ability in the current circumstances. But what of the medium term? Well, with how quickly the situation changes, and that's daily in many instances, that is possibly at this moment anyone's guess. But there is an argument for oversupply, and also potentially market tightness, too.

For the argument for oversupply, refiners are possibly going to be better placed to up their operational rates before consumers, the jet fuel and gasoline demand likely to pick up as soon as lockdowns are lifted and social distancing comes to an end. Whilst consumers are likely to take slower to ramp up, particularly as seasonality may not be correct for the fertilizer demand. This would result in oversupply coming to the market, and with soft pricing movements.

Yet, we could see that consumers pick up operational rates quicker than sulphur producers, as refiners have to first rid themselves of products which are in storage before they start considering producing more and upping their normal operational rates. This could, for a short while at least, reduce sulphur availability, and keep prices on a flat to firm footing.

At present, with the situation evolving so quickly, it's hard to say though what's coming next. A webinar from me and my colleague Meena Chauhan, who heads up the Argus Analytics service for sulphur, will be available later this month, and I will then provide further update on how COVID-19 is no doubt continuing to hit the sulphur market from all sides.

However, if you can't wait until later this month for this webinar, then please do catch up on the latest podcasts covering the fertilizer markets and Argus's broader expertise at argusmedia.com/podcasts.