03 Mar How is COVID 19 affecting the Sulphur market?
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.
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