In part one, the two biggest influencers on sulphur prices falling to 10-year lows were discussed — China and phosphate fertilizers. This part will look at other contributing factors that have helped bring the market to this point.
Blog post (part one): How did the sulphur market get here? China and phosphate fertilizers
Moroccan supply
Many global producers and consumers rely on quarterly contracts, which are broadly settled on a negotiated fixed price, to cover significant portions of their supply and demand needs. And Abu Dhabi state-owned sulphur supplier Adnoc and Moroccan fertilizer producer OCP are no exception.
Adnoc is OCP’s single biggest sulphur supplier, delivering 45pc, or 2.6mn t, of the company’s imports in 2018 and 39pc, or 2.1mn t of 2017’s imports, with a sulphur sales agreement signed between the two companies in 2017 cementing this partnership to 2025.
But in the fourth quarter of this year, the two companies did not come to an agreement and in October-December, Adnoc did not deliver any sulphur to Morocco. This left around 750,000t of sulphur without a home and has largely resulted in big volumes being delivered to China to be housed in China’s ports.
This has contributed to the length in the east of Suez markets and helped contribute to softening prices in the region on a fob and cfr basis.
Sticking with Morocco, product from Russian sulphur supplier Gazpromexport has returned to OCP’s supply chain this year, after a year of almost complete absence, because of improved Russian logistics.
Morocco imported just over 1mn t of Russian sulphur in 2017 but this dropped to just 159,000t in 2018 as there was very limited barge availability to get sulphur from producing plants to the Black Sea port of Kavkaz for shipment to Morocco through the Volga Don river system.
In January-October this year, 993,000t of sulphur — an increase of 527pc on 2018 volumes — has been delivered to Morocco from Russia. And the return of Russia to OCP’s supply chain has curbed — to an extent — north African spot purchases and has left more sulphur without a home in what had become its normal market.
There has also been more Russian sulphur in the broader spot market, with exports to China picking up by 16pc on the year to 239,000t, especially as Russian crushed lump has been on offer but priced $10-15/t lower than granular product, so is more appealing to those companies that can utilise both forms.
The US
In the US, the solid sulphur loading arm at the US Gulf port of Beaumont collapsed in mid-May and is not expected back on line until February. There were initial expectations that the lack of solid sulphur exports from Beaumont would help give support to sulphur prices because it would limit US exports by 600,000-700,000t. But it has done nothing of the sort.
Because of this lack of arm, Tampa molten sulphur quarterly prices have fallen dramatically and US sulphur importers have lowered their appetite as there is more domestic production available, with one fewer domestic export facility in place.
It is largely FSU origin sulphur that has been freed up to be placed elsewhere, as US-based fertilizer producer Mosaic has not needed to import as much solid sulphur for consumption by its 1.1mn t/yr capacity remelter in New Wales, Florida.
Mosaic has also been able to reduce its contract requirements for its Brazil operations by supplying facilities there with its own stock build of domestic US sulphur as well as previous imports, which has also reduced Brazil’s sulphur spot and contract import requirements this year.
The exception
While global sulphur markets have seen softening prices for 14 months, there is of course an exception to every rule. The Mediterranean is viewed somewhat as a nuclear market, having traditionally largely traded within itself on a fob and cfr basis.
But over the last few years, the Mediterranean has become slightly more ingrained in the global market and has not escaped the persistent price drops encountered.
Regional prices started falling in late November — around 5 weeks after the rest of the world — and dropped by $113.50/t on a mid-point Mediterranean cfr basis and $105.50/t on a mid-point fob basis by 24 October 2019, where they plateaued for six weeks.
But in December the cfr price increased by $12/t on a mid-point basis and the fob by $6.50/t on a mid-point basis on new business, marking the first increase in regional prices in a year.
There were prior expectations of a price increase as supply tightness was building in the region because suppliers were turning to north African markets such as Egypt and the west European market to make sales as demand and attractive prices were lacking from traditional Mediterranean consumers.
So, when demand returned, supply options were limited, having also been compounded by the fact that some consumers that started importing Black Sea origin product did not have this supply option because of winter logistical limitations reducing availability from the region.
But this increase is not expected to last in the long run. Market fundamentals of lacklustre consumer demand because of the poor finished phosphates market, and oversupply as new producing products come on line, will weigh more on pricing once balance returns to the region.
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