Tampa talks to start amid weaker spot market

Negotiations for the second quarter Tampa sulphur settlement will begin as US spot prices declined for the first time in eight months because of falling prices in key consuming markets Brazil and China.

US Gulf prices fell $2/t on 23 March to $78-83/t fob, the first week-over-week decrease for the assessment since 21 July 2016. US Gulf prices slowly moved up since that week, peaking at $80-85/t fob before last week's decrease.

Prior to last week, the most recent US Gulf decrease came shortly before the third quarter 2016 Tampa settlement, which fell by $5/t from the second quarter to $65/lt delivered. The next two settlements saw increases, with the first quarter reaching $75/lt delivered.

The quarterly Tampa sulphur settlement is the leading benchmark for the US sulphur market, and is settled by sulphur buyers PotashCorp and Mosaic with several of the refineries.

The US Gulf fob range is still slightly above the first quarter Tampa settlement. The US Gulf fob is a strong indicator of where the Tampa settlement will end up as it represents the netback suppliers can get on the international market, while the Tampa settlement represents the price they achieve domestically. The last three settlements have been within the US Gulf fob range. The last time it diverged, the US Gulf assessment soon dropped to the level of the Tampa settlement.

US prices have faced downward pressure because of weaker international levels.

Brazil, the leading consumer of US Gulf sulphur, bought its most recent cargoes in the $98-103/t cfr range the week ending 23 March, down by $2/t from the previous assessment. It was also the first decrease in Brazil since July 2016.

Quarterly prices are currently in negotiation in Brazil and discussions are understood to be taking place in the mid/high-$90s/t cfr Santos. Freight from the US Gulf to Brazil for a 35,000-40,000t vessel is currently assessed at $18-20/t.

Brazil demand is expected to be present with the domestic fertilizer application season approaching. But prices are following the lower global trend spurred by lower phosphate operating rates and resulting demand in leading sulphur buyer China.

The Chinese import price is the leading indicator of global market sentiment as the country imports the most sulphur and buys from every major producing region. China imported 12mn t of sulphur in 2016, more than double the 5mn t brought in by second largest importer Morocco.

Granular sulphur prices in China have fallen to $102/t cfr, down by $5/t from the peak after the Lunar New Year in early March. Buyers are now pushing for the mid-$90s/t cfr and lower.

Brazil prices have followed the decreases in China, and have led to the switch in sentiment in the US. US Gulf export prices have declined despite a domestic market largely seen as balanced, with supply tightened by the early-year turnaround season.

Before the recent drops in international prices, US market participants had been expecting a significant increase for the second quarter settlement. Some had cited $10-15/lt as appropriate, when US Gulf prices were in the $80s/t fob, so the recent drop off may simply lead to a smaller increase or roll over.

Tampa negotiations are expected to begin in earnest this week and the settlement will come in April. If further decreases in China and Brazil come to pass during negotiations, US Gulf netbacks would at least move down to the level of the current Tampa settlement. Any drop below $75/t fob could pressure suppliers to settle early, or potentially accept a decrease.