Was the Q4 2017 sulphur price really a blip?Posted On: 26-01-2018 By: Ali Asaadi
By Oliver Hatfield – Director of Fertilizers and Chemicals
If you accurately forecast sulphur price movements during the last quarter of 2017, then you can certainly be pleased with yourself. The market was highly volatile in that period and the extent and velocity of the fly up caught most market players by surprise. The volatility began in October 2017 then continued in the last two months of the year, with a rapid climb in prices through October and November shifting quickly in to reverse in December. For several weeks in October, the delivered price to India exceeded US$220 per tonne and similar price levels registered on spot business to China. Chinese buying was above year ago levels as dwindling port stocks encouraged speculative buying. Sulphur prices had not got near that level since February 2014, when they exceeded US$210 per tonne for a few weeks, and we have to go back to 2011 to find a period when a US$210+ level was sustained for more than a month.
Each month our sulphur team forecast sulphur prices for the year ahead, including monthly average prices for the following three months. The prevailing volatility made this a bigger challenge than normal when we made our predictions in November 2017! We observed at the time that the rate of sulphur price inflation and nature of some of the deals agreed as Q4 2017 unfolded suggested a degree of unsustainability. Our colleagues in our phosphates analysis team who track phosphate producer margins were telling us that phosphate makers, already under a persistent margin squeeze, would not be able to absorb higher sulphur costs for long. So we took the view that gravity would take hold and bring sulphur prices downwards. This turned out to the be the right call and in December, spot sulphur prices were $30-50 per tonne lower than November values, and in mid-January the China delivered reference had dipped to US$140-145 per tonne.
The latest price rally marks another false dawn of the long-anticipated sulphur supply tsunami with accompanying sulphur prices on the floor. Ongoing delays at key projects like Kashagan in Kazakhstan – which had been expected to lengthen market supply – did not materialise in the second half of 2017. As we look forwards, the question remains, will a sulphur supply surplus actually materialise?
There is significant price uncertainty in the next few months, during the seasonal demand peak, while supplies are expected to remain relatively tight. However, we think the further in to 2018 and beyond we go, the shorter the odds on a much weaker sulphur market. Analysis of the fundamentals from our Sulphur Market Dynamics Service point to sulphur supply growing substantially faster than demand and other things being equal, we would expect the sulphur market to weaken significantly.
Sulphur demand is predicted to increase more or less in line with trend, but a swathe of hydrocarbon projects are set to boost supply. A supply surplus of around 3 million tonnes is anticipated for the calendar 2018, weighted toward the second half of the year. The surplus grows in the years thereafter, implying a sustained period of depression. As with all forward-looking exercises, there are inherent pitfalls. For the sulphur market, the main risks are still around project timings and our market models also consider the implications on the market balance and prices with alternative supply growth assumptions.
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