Sulphur: Competition to Intensify on Rising Feedstock Costs
Year:2019 ISSUE:16
COLUMN:INORGANICS
Click:160    DateTime:Aug.23,2019


By Li Tie, Tianjin Petrochemical Transportation and Sales Centre


Supply-demand conditions of China sulphur resources

   Supply

   China is poor in natural sulphur deposits and therefore, sulphur is mainly derived from the processing of crude oil and natural gas as a by-product, and in China, mostly from crude oil. China currently has around 10.24 million t/a of oil and gas-recovered sulphur capacities, including 6.54 million t/a of oil-based and 3.24 million t/a of natural gas-based sulphur capacities, with domestic output at around 6.2 million tons. In recent years, China’s increasing awareness of environmental protection has been fueling domestic demand for natural gas, thus boosting the sulphur output based on natural gas. So far, major producers recovering sulphur from processing natural gas include Sinopec Puguang Gas Field, Yuanba Gas Field, PetroChina Northeast Sichuan Gas Field’s Phase II and III projects and Pengzhou Gas Field. China’s sulhpur capacities from the purification and recovery of natural gas are expected to reach 4.5 million t/a by 2025, which will continue to help ease the tight domestic sulphur supply. 

   Great progress has been made in coal-based sulphur as China is a major coal producing and consuming country. A number of coal-chemical-based sulphur plants have been built up, with capacities totalling nearly 500 kt/a, including large comprehensive producers such as Zhongtian Hechuang and Shenhua Guoneng. In next decade, sulphur recovered from coal will become a major supplement of domestic sulphur supply. By 2025, domestic sulphur output derived from petroleum refining and chemical, natural gas purification and recovery and coal-chemical recovery sectors is expected to exceed 9 million tons and China’s import reliance rate will fall below 50% by then. 

   Demand

   Chemical fertilizers, asphalt and concrete industries are major consuming areas of sulphur. China’s sulphur products are mainly applied in sulphuric acid production and the rest are for direct use or for deep-processing. Above 60% of sulphuric acid consumption is to produce phosphate fertilizers. As for the chemical sector, titanium dioxide production contributes to 27% of sulphuric acid consumption. Phosphate fertilizer producers are concentrated in southwest and central China, while chemical producers are mainly located in east and north China. Sulphur-based acid plants are mostly supporting facilities.  

   Domestic sulphuric acid output reached around 86 million tons in 2018, of which, 45.8% are sulphur-based acid. The share of the smelting process in the domestic sulphuric acid market is increasing, with its capacities expanding and acid prices from the smelting process directly impact sulphuric acid prices. At present, China has over 70 producers with sulphur-based acid capacities exceeding 300 kt/a. But the capacity expansion rate has been slowing down. Only two-to-three sulphur-based plants plan to launch production during 2019-2021. 

   As for downstream markets, the phosphate fertilizer market is bearish in recent two years and plants operating rates keep falling. China has made remarkable achievements in supply-side structural reform recently. Sulphuric acid demand from the chemical sector has been shrinking, but domestic sulphuric acid consumption has been increasing instead. In 2019-2021, new sulphuric acid capacities in China will reach around 10 million t/a, a majority of which is smelting-based acid, with sulphur and ore-based acid taking quite a small share. Domestic sulphur demand is expected to drop in the following years. Domestic sulphur-based acid output stood at around 37.85 million tons in 2018 and demand at 12.6 million tons, while in 2019, domestic sulphur demand will slip to 12 million tons and rise to around 13 million tons in 2025. 


Imports

   Imported sulphur into China is mainly used to produce sulphuric acid. Major import origins include Saudi Arabia, Qatar and United Arab Emirates (UAE), accounting for 40-45% of the domestic total. Other import suppliers include South Korea, Japan, Iran, Canada, Turkmen, India and Russia. China’s sulphur import volume fell after initial increases (see Table 1) since 2010. The imports in 2011, 2013, 2014, 2017 and 2018 all logged in year-on-year drops, while those in 2012 and 2015 posted sharp year-on-year growths and the import volume in 2016 showed limited changes year on year. China’s apparent sulphur consumption is around 17 million tons. Increasing domestic supply may trigger consecutive declines in sulphur import volume into China. 

   Table 1  China’s sulphur import volume in 2010-2018

Year

Import volume (kt)

YoY growth (%)

2010

10 480

-

2011

9 520

-9.16

2012

11 200

17.56

2013

10 550

-5.80

2014

10 240

-2.94

2015

11 930

16.50

2016

11 960

0.25

2017

11 240

-6.02

2018

10 780

-4.09

2019 (E)

10 200

-5.38


Price trends

   Domestic sulphur prices generally fluctuated in the range of RMB950-1 410/t from 2014 to 2015. The price fluctuations have eased after 2015 as China’s whole-year opening export window for fertilizers ensures relatively stable sulphur production and as large producers are flexible in securing feedstock supply. However, increasing international phosphate fertilizer capacities took a hit on China’s phosphate fertilizer exports and suppressed domestic sulphur demand. Domestic sulphur prices decreased as a result. From the end of 2015, falling overseas prices and high inventories at domestic ports weighed down the domestic sulphur market. During the period, granular sulphur prices at ports along the Yangtze River even dropped close to the historic low set in July 2013. The market regained steam after downward corrections in early 2017 and prices continued to refresh record highs in recent years.    

   So far in 2019, the domestic sulphur market is repeating the trend in 2016, but overall, prices are much higher. Major influencing factors include the restrictions from the soft downstream phosphate fertilizer industry. Sluggish downstream demand since the start of 2019 caused overstock of phosphate fertilizers. Producers had to curtail their operating rates, dragging down feedstock sulphur prices. Meanwhile, domestic supply is expected to increase. Hengli Petrochemical (Dalian)’s 520 kt/a plant was put into test run in late 2018 and its monthly output is estimated at 30 kt after normal operation is realized. International market gives limited support to the domestic market. Since January 2019, monthly contract prices of China’s major sulphur import origins, including Qatar and UAE kept falling, with a combined loss of US$33/t and US$55/t respectively in May compared with December 2018. 


Market forecast

   The sulphur market may get little boost from the downstream phosphate fertilizer market in the near term. Environmental protection, transportation limitations and local policies are likely to deter phosphate fertilizer production. This may dampen domestic sulphur demand in 2019.   

   As for the domestic sulphur market, China’s apparent sulphur consumption stood at around 17 million tons since 2015. Fewer import volumes and more domestic output in recent two years have reduced China’s reliance rate of sulphur imports, from around 70% in 2015 and 2016 to 65.8% in 2017 and to 63% in 2018. Expectations about high import prices may continue to heighten the competitiveness of domestic sulphur products. If Hengli Petrochemical and Zhejiang Petrochemical start up their plants as scheduled, domestic sulphur output is likely to exceed “6.5 million tons” in 2019. If China’s apparent sulphur consumption remains largely stable, its sulphur import volume may fall to around 10.5 million tons. 

   Overseas producers in Saudi Arabia and Morocco-based OCP boast competitive costs. They have capacity expansion plans in 2019-2020. Hence, Chinese phosphate fertilizer producers still face heavy headwinds in the export market.