Sulfur Market Prospect Holds No Room for Optimism

The price of sulfur in the domestic market has continued to go
down since 2006. It has already dropped from RMB988 per ton at
the beginning of 2006 to RMB819 per ton today. The sustained
price reduction is closely related to market supply and demand.
China's massive import of sulfur resources remains unchanged,
but the domestic output keeps increasing. The oversupply imposes
considerable pressure on the price. In addition, the capacity
of phosphate fertilizers in China is in surplus and the sulfuric
acid market continues to be slack. The demand for sulfur in
downstream sectors is therefore always soft.

1. Imported amount tends to be stable

With the restriction in resources, sulfur production in China
is mainly based on sulfur recovered from the crude oil processing.
The output is relatively low. To meet the domestic demand, China
has imported great quantities of sulfur from abroad for many
years. Since 1998, due to the pressure for environmental
protection and the difficulty in raw materials transportation,
many pyrite-based sulfuric acid plants have renovated their
production process and started to produce sulfuric acid from
sulfur. Also, the price of sulfur was quite low in 1998, at US$60
per ton. Many companies therefore constructed sulfur-based
sulfuric acid units. The rapid development of sulfur-based
sulfuric acid production has led to an increase of sulfur imports.
The imported amount of sulfur in China was 8.306 million tons
in 2005, an increase of 22.8% over 2004.   
    The total imported amount of sulfur in China was 6.499
million tons in the first three quarters of 2006, only 2.83%
higher than the same period of 2005. Because of the reduced new
capacity of sulfur-based sulfuric acid and the market demand
reduction of sulfur, the import growth of sulfur has slowed down.

2. Import sources become diversified

The world's sulfur resources are mainly distributed in Canada,
Russia and Kazakhstan. Sulfur imported to China today comes
mainly from Canada. Saudi Arabia, the United Arab Emirates and
Japan come next.

3. Domestic output has increased constantly

Sulfur production in refineries has increased constantly in
recent years. The capacity of sulfur in China was 1.539 million
t/a in 2005 and output reached 912 thousand tons, an increase
of 16.1% over 2004.   There are two main factors for the
increased output of sulfur in China. (1) The imported amount of
high-sulfur crude oil with a sulfur content of over 1% reached
42.2587 million tons in 2005, an increase of 22.4% over 2004 and
accounting for 33.3% of all crude oil imports. The proportion
of high-sulfur crude oil in the total crude oil processed
increased from 12.8% to 14.8%. (2) With greater attention paid
by the state to environmental protection, all refineries have
constructed sulfur recovery units.
   Sulfur production in China is mostly collocated with
refineries. There are many sulfur producers in East China,
Central China and riverside areas and the output is also quite
big. There is also considerable output from North China,
Shandong province and South China. The output is relatively
small in Northeast China and Northwest China.
4. Market price goes way down

The average market price of sulfur in China fell dramatically
in 2006. The price reduction margin reached RMB169 per ton from
January to October. In January 2006, the sulfur market retained
the brisk status in 2005 and the average market price was
maintained at a high level of RMB988 per ton. After the spring
festival, however, the price started a rapid downslide and the
average market price was already only RMB918 per ton in March
2006. The sulfur market failed to make any improvement in the
second quarter of 2006. The demand for sulfur in downstream
sectors was still soft and the price still kept going down. The
average market price dropped to RMB878 per ton at the end of June
2006. Pulled by the sulfur demand growth in the sugar-making
sector in South China, the price drop in the sulfur market
started to slow down. The average market price was RMB819 per
ton in October 2006, only a drop of RMB1.0 per ton from the price
in September 2006.

Market price will be stable with some drop in 2007

The newly added sulfur capacity in Southwest Gas Field of CNPC
Southwest Company will produce significant impact on the market
trend. The company will construct 3 purification plants in 3
years from March 2007. The newly added sulfur capacity of these
plants will be 1.53 million t/a, equal to the total sulfur
capacity in China today. If these 3 plants start normal
production, the mode of sulfur production in China will be
totally changed. Southwest China will become the most important
sulfur producing region in China. The first 430 thousand t/a
sulfur recovery unit constructed by the company will start
production in March 2007. The sulfur capacity in China will
increased rapidly to more than 1.9 million t/a at that time.
    Sulfur is a byproduct in the oil/gas processing. To meet the
requirements for environmental protection, sulfur must be
recovered in oil/gas processing. The production cost of sulfur
is not related to the crude oil price. Nevertheless, the crude
oil price has a direct effect on the freight cost and in turn
on the sales cost of sulfur. The crude oil price has come down
from its earlier high level and will not likely go back up very
much in the near future. The shipping cost, which has the
greatest effect on the price of imported sulfur, has declined.
Due to fierce competition, the shipping cost will possibly go
further down in 2007 and the CIF price of imported sulfur will
also decline. The market price of sulfur in China will therefore
be fairly stable with some drop in 2007.

Major Sulfur Producers in China in 2005
(thousand tons)
Producer                                 Output
Sinopec Zhenhai Refining & Chemical Co.     130.0
Sinopec Maoming Petrochemical Co.            110.0
Sinopec Qilu Petrochemical Co.              100.6
Sinopec Jinling Petrochemical Co.           85.0
Southwest Oil/Gas Field Purification Plant    78.0
Dalian West Pacific Petrochemical Co.        75.0
Sinopec Yangzi Petrochemical Co.            52.0
Sinopec Shanghai Petrochemical Co.          50.0
Fujian Refining & Chemical Co.               26.0
Sinopec Anqing Petrochemical Co.            20.0
CNPC Liaoyang Petrochemical Co.             18.0
Sinopec Guangzhou Petrochemical Co.         18.0
Source: CNCIC Chemdata


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