Chinese port congestion since August has tightened vessel availability and lifted freight rates, leading to a rise in sulphur export prices to a year-high of $266/t fob Middle East in early December and import reluctance among most southeast Asian buyers.
Prices have risen by $86.50/t since the beginning of the third quarter and from $99/t fob at the start of 2021, prompting many buyers in southeast Asia to hold off import purchases for now. A rapid rise in global sulphur prices in the second half of the year already weakened buyers' profit margins, pushing them out of the import market and encouraging a turn to domestic supply sources. Refineries in the region such as in Malaysia are finding it difficult to meet this sudden influx in demand, with some already running at lower rates because of Covid-19 control measures.
A fire last year at Malaysian state-owned Petronas' 300,000 b/d Pengerang refinery and petrochemical complex has curbed the firm's granular sulphur production, while technical problems and Covid-19 measures at its 300,000 b/d Malacca refinery have cut supplies of molten sulphur. The Pengerang refinery — a joint venture between Petronas and Saudi Arabia's state-owned Saudi Aramco — is scheduled to restart only in the second half of 2022, so sulphur supplies from Malaysia are likely to remain tight until then.
But the elevated global sulphur prices have not dampened buying interest from Indonesia, with buyers in Sulawesi and on Obi island purchasing 25,000t and 40,000t of granular sulphur at $310/t cfr and $305/t cfr in late November and early December respectively. The country has no choice but to buy sulphur — regardless of how high prices are — to feed its new metals projects.
Indonesian smelter PT Halmahera Persada Lygend, which is located on Obi island, has purchased at least 120,000t of granular sulphur since it started up the first of its two 500,000 t/yr sulphur burners in April. It is expected to consume up to 330,000 t/yr of sulphur when both burners reach full capacity in the next few years. The China-backed PT Huayue nickel-cobalt project in Sulawesi began commissioning in early December following trial production. The project, which will produce nickel-cobalt mixed hydroxide precipitate, is expected to need about 600,000 t/yr of sulphur.
Wait-and-see mode
The rest of southeast Asia such as Thailand and Vietnam have the freedom to wait — at least until the end of January when they are likely to run out of inventories — for prices to fall low enough to make deals for first-quarter deliveries.
Vietnamese sulphur buyers have secured enough cargoes and have mostly stepped out of the market for the rest of the year to avoid paying the higher fob prices from the Middle East. Vietnamese refinery operator Nghi Son Refinery and Petrochemical sold granular sulphur to a domestic buyer through a tender for the second time this year, with the previous one awarded in June at $190/t fob.
This wait-and-see approach has resulted in muted demand at the end of 2021.
But even if buyers return in January, this is unlikely to lead to a huge jump in demand. China's fertilizer export restrictions have fuelled uncertainty over deliveries, which will be made worse if the congestion at Chinese ports continues. Most buyers, except for maybe Indonesia, are likely to make purchases only on a need-to basis going into 2022 or step out of the market if they can afford to — as in the case of Thailand and Vietnam now, where some fertilizer producers have reduced operations because of a lack of sulphur and sulphuric acid availability.
