The NorFalco sulphuric acid terminal in Savannah, Georgia, will increase competition in the well-supplied southeastern US region.
The terminal will give one of the leading North American suppliers vessel access in addition to rail as it looks to achieve the lowest freight possible while increasing its participation in the market.
Glencore, NorFalco's parent company, signed the deal with Colonial Terminal in Savannah to develop a terminal large enough to accept full-sized tankers of more than 20,000t of sulphuric acid in February. The facility is expected to be operational by early next year.
The terminal is expected to be an additional outlet for global commodity producer and trader Glencore's capacity beyond just NorFalco.
The terminal joins a crowded field of vessel import locations in the southeast, in addition to regional production and rail imports from Canada.
The southeast already has vessel import terminals that bring in significant tonnage in Savannah (Southern States); Jacksonville, Florida (Shrieve); Tampa, Florida (SATCO); and Wilmington, North Carolina (Archer Daniels Midland). The Pascagoula, Mississippi, terminal has ramped down since the 2014 Mississippi Phosphates shutdown.
NorFalco is one of the largest domestic merchant marketers of sulphuric acid in North America, distributing around 2mn t/yr from production assets in Canada. Additionally, Glencore produces 5mn t/yr globally and has an additional 4mn t/yr from subsidiaries in 2015, not all of which is controlled by the giant.
NorFalco and Chemtrade move significant Canadian volumes to the US and southeast, some of which is expected to be displaced by NorFalco's new vessel terminal.
Canada shipped 177,000t to the southeastern US, defined as Florida, Georgia, North Carolina, South Carolina and Virginia. Other potential states for volumes through the new Savannah terminal include Alabama, Mississippi, Tennessee and Kentucky, which received a combined total of 222,000t by rail from Canada.
The terminal is also a potential destination for displaced supply that was previously shipped to Sherritt in Cuba after the nickel producer built a new sulphuric acid plant. Sherritt brought in 219,000t of sulphuric acid from Germany and Spain in 2015, with Glencore among the suppliers from each of those countries. It most recently sent a vessel from Spain to Cuba in July 2016.
It is unclear how the imported tonnage to NorFalco will compete with regional suppliers in the southeastern US. The market is viewed as fundamentally balanced-to-long with a bearish outlook.
The vast majority of production in the southeast is captive capacity at Honeywell, Mosaic and PotashCorp. Argus estimates non-captive capacity in the region at around 1.4mn t/yr. Mississippi Power is also expected to commence acid production during the fourth quarter and add around 120,000 t/yr to the merchant market to be marketed by Martin.
The demand side is clouded some by the upcoming shutdown of the Fibrant caprolactum plant next month in Augusta, Georgia. The plant consumed an estimated 210,000 t/yr acid produced by Chemtrade.
Chemtrade wrote down its sulphuric acid plant in Augusta as a result. The plant's future remains up in the air and, if it does continue to produce, market participants are skeptical there is room for that tonnage.
Outside of the Fibrant closure, regional demand looks stable in the near-term, despite some bearish factors stemming from lower expected utilization at pulp and paper producers in the region.
With the amount of supply already in the region, the NorFalco terminal is likely to bring some pressure and increase competition in the southeastern market in 2017. The lack of new demand and flat supply leaves no opportunities for an organic addition, and it is doubtful NorFalco would commission a new facility to reallocate railed volumes to the southeast to vessel volumes to the same region. NorFalco has declined to share the cost of the facility.
Annual supply contract negotiations are ongoing in the region for 2017, but are still in the early stages. It remains to be seen if NorFalco increases its activity in the region for next year.
The Savannah terminal is also the latest move by NorFalco to increase options for importing sulphuric acid by vessel. It previously added a shore tank in Houston and is now considering a terminal on the west coast of North America. It has also increased its vessel activity out of Canada, with exports by vessel from its New Brunswick and Quebec locations swelling to 64,000t through July 2016, up from 38,000t during the same period last year.
Maintenance in the first half of the year is likely to create some opportunity for new import volumes. NorFalco is expected to have a 100,000-150,000t decrease in available supply because of planned maintenance, meaning it may cover its supply requirements early in the year from the offshore market.
The terminal's utilization beyond that point remains to be seen. Whether supply is just reallocated by NorFalco or volumes from competitors are also replaced will be watched closely by the market.
