Sulphur 388 May-Jun 2020
31 May 2020
Trends in sulphur markets
MARKETS
Trends in sulphur markets
A look at the major factors influencing the sulphur market around the world.
World production of elemental sulphur reached 66 million tonnes in 2019, and continues to come almost exclusively from recovered sulphur from refineries and sour gas plants, with mined sulphur less than 1% of production.Additions to sulphur capacity are coming from new refinery projects, especially in the Middle East and Asia, and large sour gas projects, again dominated by new production in the Middle East.
Supply – refineries
Sulphur supply from refineries has been rising steadily for decades as regulations on sulphur content of fuels continue to tighten and overall use of vehicles fuels increases, especially in Asia. In the short term this is likely to increase – with the exception of the period of the Covid-19 crisis of course – as the effects of the latest global reduction in sulphur content; the new International Maritime Organisation (IMO) regulations on shipping fuels, continue to work their way through the market for bunker fuels.
However, in the longer term this boost to sulphur production may begin to level off and even decline due to changing patterns of use of refined products.
Increases in global oil consumption have been slowing noticeably, and in 2019 consumption rose by only 0.8%. About 40% of demand is accounted for by road vehicle fuel consumption, and this is likely to peak in the next few years due to a variety of factors. One major one is the increasing fuel efficiency of vehicles, but ageing global populations (who drive less), the approaching saturation of vehicle ownership in formerly industrialising economies, and the increasing use of ride sharing apps and other shared mobility services will all play a part. One factor expected to become increasingly important as the decade progresses will be the increase in market penetration of alternate drive trains, especially electric vehicles.
Consequently there will be a peak in demand for vehicle fuels which may come sooner than expected. A consultancy paper by Bloomberg puts the peak at 2030, with consumption slowing markedly in the run up to that date, and Wood Mackenzie has picked a similar date. This part of a wider pattern of a peak in overall global oil demand, where the spread in predictions runs from 2030 to 2040, with forecasts clustering to the lower end of that range, and forecasts for demand becoming essentially static by around that time. The International Energy Agency last year said that global oil demand would be roughly flat from 2025 onwards. In April this year, the UK’s Financial Times even ventured to suggest that, with the lingering effects of Covid-19 on the world, the collapse of demand from aviation and cruise lines, and perhaps a post-Covid push towards greater home working and teleconferencing, we may even have already seen peak oil demand in 2019.
Another factor which has driven increasing sulphur output from refineries has been that tightening emissions regulations have called for steadily increasing percentages of sulphur to be removed from refined products. However, the potential for additional recovery, at least in raw tonnage terms, is also starting to fall. Most sulphur is now already recovered from oil before the products leave the refinery. North America, Europe, Russia and most of industrial Asia (China, Japan, Korea, etc) have already moved to 15 ppm or lower standards for sulphur content of vehicle fuels, and India is moving to that level this year. Some of the major holdouts on high sulphur fuel standards used to be in the Middle East, but even here, Saudi Arabia has also moved to a 50 ppm sulphur standard, and many African countries which also used to permit large sulphur content in fuels have followed suit. It follows that further reductions from vehicle fuels will be incremental only. Aviation and maritime fuels used to still permit high sulphur levels, but with the world’s shipping fleet moving to a 0.1% sulphur standard in Emission Control Areas – the number and scope of which continues to increase – and 0.5% outside of these, most of the sulphur is now removed from bunker fuels as well. Exhaust scrubbing systems have not caught on to the extent that was hoped, and the current rock bottom fuel prices make the economics of that even less enticing for now. Aviation fuels have managed to fend off global sulphur standards for now, but both the shipping and aviation industries are facing increasing pressure to lower carbon dioxide emissions, which may mean moving to more efficient engines and alternative fuels. At the same time, new liquids production is coming particularly from the US, from fracked ‘tight oil’ and natural gas liquids, which are generally lower in sulphur content.
Once again this is a longer term development. For the moment, many refineries are still expanding their sulphur recovery capacity to meet existing regulations, especially in Asia – much of this has been in response to the IMO 2020 regulations. The Middle East is also seeing new refining capacity – Kuwait’s new refineries, discussed in our previous issue, will increase sulphur recovery capacity there by up to 1.8 million t/a over the next two years, and there will ramp ups of new refinery capacity in India, China, Malaysia, Indonesia, adding perhaps another 2.7 million t/a of sulphur recovery capacity over the next few years. Beyond 2025, however, additional sulphur volumes from refineries may be incremental at best. Conversely, US refinery sulphur output fell in 2019 by 500,000 t/a as refineries switched to sweeter crudes to produce low sulphur shipping fuels, and some places, like Europe and Japan, may see more refinery closures due to competition from larger, more efficient Asian refiners.
Processing of heavy oil sands crude was supposed to have driven a significant increase in sulphur supply, but the implosion of the Venezuelan economy has destroyed the prospects for the Faja de Orinoco oil sands belt for now, and Canadian oil sands processing has faced difficulties from low oil prices, shortage of export routes and environmental opposition in the US. Additional sulphur recovery from Canadian oil sands looks to be more modest in prospect now – perhaps a couple of hundred thousand tonnes per year over the next five years from expansions at existing projects, with few new projects on the cards until export pipeline routes become available.
Supply – sour gas
The other main source of sulphur is from processing of sour gas, and here the situation is somewhat different. Use of natural gas is also rising steadily around the globe, mainly for power production, increasing 5.2% in 2018, although this was an exceptional year. Overall, global gas consumption has risen from 3.03 trillion cubic metres in 2008 to 3.87 trillion cubic metres in 2018, according to BP figures, an average annual growth rate of 2.3% worldwide. Demand growth has been strong in North America and Asia, but it has been fastest over the past decade in the Middle East, where rapidly rising populations and demand for electricity in fast-growing cities like Dubai and Abu Dhabi have pushed growth in power generation. In North America, gas has steadily replaced coal as a power generation fuel, partly for environmental reasons, but mainly because of the boom in production in shale gas which has made gas much more price competitive with coal as a feedstock for power and chemical production. Conversely, Europe has seen gas consumption fall because of falling domestic production and the higher cost of importing from Russia and the international LNG market.
Global gas consumption continues to increase, but as with oil the rate of growth is slowing markedly. McKinsey puts the rate of demand growth at 1.3% year on year over the next five years, and then 0.7% thereafter out to 2035. As well as an increasing focus on carbon emissions in places such as Europe, Canada and even China, there is rapidly increasing availability of renewable electricity. Meanwhile, supply from new conventional gas fields is becoming harder to source, and there has consequently been considerable growth in ‘unconventional’ gas – from shales, coalbed methane, or ‘tight gas’, as well as biogas and other sources. Lack of availability of sweet gas in some regions, especially the Middle East, but also including China and Central Asia, has led to an increasing focus on sour gas resources to meet demand. This in turn continues to generate large new volumes of sulphur.
In China, production comes from three gas plants, at Chuangdongbei, Puguang and Yuanba. Production reached about 2.3 million t/a in 2019, and is continuing to increase slowly, perhaps by 500,000 t/a over the next five years. Central Asia has seen the start-up of the South Yolotan/ Galkynysh sour gas plant in Turkmenistan, and the re-start of the huge Kashagan sour associated gas project, as well as additional production at Tengiz and the Kadym project in Uzbekistan. However, most new sulphur from sour gas is coming from the Middle East, where Saudi Arabia is adding 1.3 million t/a of sulphur production capacity via the Fadhili gas plant, due to be commissioned this year. Qatar’s Barzan LNG project will generate an additional 800,000 t/a sulphur, and Abu Dhabi is expanding the already huge Shah sour gas project to add a potential 1.7 million t/a of sulphur from around 2023, as well as looking longer term to production from the Hail and Ghasha sour gas fields. Production from Iran’s South Pars and other sour gas projects is also adding incremental capacity.
Set against this, sour gas production is in long term decline in Europe and North America. US sulphur production from sour gas fell by 300,000 t/a last year and Canadian production is on a long, slow decline. Falling production in Germany could remove another 200,000 t/a of sulphur from the market over the next 5 years. Nevertheless, in spite of these reductions, sour gas is going to be the main new source of sulphur supply over the medium term, mainly from the new Middle Eastern gas projects.
Demand – sulphuric acid
Most sulphur – around 90% – is consumed as sulphuric acid. Sulphuric acid is the most widely used industrial chemical, but burning elemental sulphur is not the only source of sulphuric acid – around 8% comes from roasting of iron pyrites, mainly in China, and another 30% from capture of sulphur dioxide emissions at metallurgical smelters. The smelter acid segment is involuntary production and tends to be relatively independent of sulphur prices, but instead determined by the markets for base metals, especially copper. There is however some interchangeability between sulphuric acid and sulphur for some producers, like OCP in Morocco, who can to a limited extent turn from buying sulphur on the international market to importing sulphuric acid directly instead. This complicates the market for elemental sulphur slightly, as it must to an extent compete with pyrites and smelter acid production, especially in countries like China. As smelter acid, as a waste product, can often be relatively inexpensive, it can often be preferred where there is a source of supply locally. But the difficulties of storing and transporting large volumes of acid have conversely also meant that some consumers have installed sulphur burning capacity in order to gain greater control over feedstock supply, as has happened in Cuba and Chile in recent years.
Nevertheless, because most sulphuric acid is used in phosphate fertilizer production, and fertilizer production centres do not often coincide with metal smelting or pyrite roasting regions, demand for elemental sulphur to be burnt for acid production remains dominated by producers of single superphosphate (SSP), ammonium sulphate and especially phosphoric acid for phosphate fertilizer production – mainly mono- and di-ammonium phosphate (MAP/ DAP), accounting for around 60% of all sulphuric acid consumption.
Phosphates
Fertilizers of various types account for 90% of phosphate demand, with the rest used for a variety of industrial uses, from food and animal feed to detergent and metal treatment. Some 63.3 million t/a P2 O5 of phosphate rock was mined in 2018. Some of this was combined directly with sulphuric acid to make single superphosphate (SSP) fertilizer, and most of the rest was used to make phosphoric acid. Global phosphoric acid production stood at 47.0 million t/a P2 O5 in 2018, about 85% of which was used for fertilizer production, mostly mono-and di-ammonium phosphate (MAP/DAP) or triple superphosphate (TSP). The main centres of phosphate fertilizer production are China, the US and North Africa, with other significant producers including India, Russia, Brazil and Saudi Arabia.
Growth in demand for fertilizer is tied to increasing global populations and more intensive agriculture in some parts of the world, especially South America and Africa. However, in other parts of the world such as Europe, demand is mature, while China has been over-applying fertilizer and is attempting to make its application more efficient and environmentally friendly by restricting the application of nutrients. This has led to a gradual slowing in the rate of demand increase for fertilizer.Overall demand for phosphate fertilizer is projected by IFA to increase by 1.4% year on year over the next four years, a total increase of 3.3 million t/a P2 O5 , but this can be subject to considerable annual variation due to weather and other issues. Last year, for example, phosphate fertilizer application was down considerably in the US due to widespread flooding in the main agricultural region of the mid-West.
New phosphate fertilizer plants are being built, mainly in Morocco and Saudi Arabia, but there has also been considerable industry overcapacity, much of it in China, where tightening environmental emissions legislation and low product prices are leading to a shake-out in the phosphate sector and the closure of numerous production sites. The once dominant US phosphate industry also continues to rationalise due to falling mine outputs and higher costs. The upshot is that most new sulphuric acid demand for phosphate production in the medium term will come from places such as Morocco, Algeria and Egypt as well as Saudi Arabia, which will add 5.2 million t/a P2 O5 of phosphoric acid capacity between them out to 2024. There are also capacity additions projected in Kazakhstan, Russia and Turkey, and possibly Brazil. North Africa and Saudi Arabia are not large scale producers of metallurgical acid, so the resulting acid consumption will mainly come from sulphur burning acid plants and hence represent several million tonnes of additional sulphur demand.
Industrial uses
“Acid demand for other industrial processes continues to increase at a higher rate than for fertilizer use”
On the industrial side, sulphuric acid is used in the leaching of rocks for metal extraction – primarily copper, but also nickel, uranium, rare earths and gold. It is also consumed by a wide range of industrial uses, including titanium dioxide pigment production, especially in China and Europe, caprolactam manufacture, and many others. Metal leaching operations are strong in Chile, Peru, the USA and southern Africa’s copper belt, and likewise Kazakhstan uses large volumes of acid for uranium extraction. A number of large scale plants were built for nickel laterite processing in places such as Madagascar, Australia, Cuba, New Caledonia and the Philippines which consumed large volumes of acid. However, costs and technical difficulties and changes in nickel markets led to more of a focus on other processes such as nickel pig iron and ferronickel manufacture. But Indonesia’s decision to halt exports of nickel ore and the rise in demand for high quality nickel sulphate for battery manufacture for electric vehicles is leading to a resurgence in interest in high pressure acid leach (HPAL) plants, as detailed elsewhere in this issue. This in turn could lead to demand for another 2.5 million t/a of sulphuric acid in Indonesia for new HPAL plants. Whether this could be met by increases in smelter acid production or sulphur burning remains an open question.
Elsewhere, acid demand for other industrial processes continues to increase at a higher rate than for fertilizer use. This has been particularly true in China. New Chinese acid demand is however being met mainly from new copper smelting capacity, and sulphur consumption is expected to remain relatively constant.
Pandemic disruption
The spread of the Covid-19 virus has been the most disruptive event to global markets in living memory, and the effects are at present hard to gauge. Much depends upon the length and intensity of so-called ‘lockdowns’ of populations across the world, beginning in China’s Hubei province, but now spread to most of Europe and North America, India, Australasia and beyond. The entire global economy has to an extent been placed on ‘pause’. Refiners are lowering operating rates as tanks fill up, with demand for refined products badly affected. Argus calculate that US and European sulphur production may be down 10-20% in March, and lower still in April. Gas-based producers are continuing to operate however, as the gas is needed to keep power plants running. ADNOC’s sulphur output is reported to be unaffected, at least for now.
On the demand side there are shutdowns too. China’s phosphate fertilizer industry is heavily based in the worst affected regions, where many plants have been closed since January, although as the lockdown is lifting, there are indications that demand has rebounded as producers try to fulfil orders before the spring application season. In India, major fertilizer producers took maintenance turnarounds in March that have extended into full shutdowns. The nickel plant at Ambatovy in Madagascar is likewise idled, although most African fertilizer producers continue to operate, especially OCP in Morocco. Elsewhere, the closures or increased checks at many borders, even within Europe’s notionally border-free Schengen Area, has slowed the passage of products of all kinds. Ironically, the resulting difficulties in securing supply have actually pushed sulphur prices up as a result.
Supply/demand balance
Leaving aside the unforeseeable, where does this leave the overall supply/demand balance for sulphur over the next five years? New supply from refining and sour gas, taken together, adds about 9 million t/a of capacity, provided that there are no further project delays, while new demand may only reach 5.5 million t/a over the same period. The market is and continues to be in surplus, although a lot of the new supply is concentrated towards the start of the period, while demand is more spread out.
On a regional basis, the Middle East continues to be the largest exporting region, as new refineries and sour gas projects push additional output much higher than projected demand increases from Saudi Arabia’s phosphate processing. North America may run a slight surplus while European supply is looking increasingly tight due to sour gas and refinery closures and run downs. There is additional sulphur available from Central Asia, but how much of that will find a market may depend upon pricing, and those prices are likely to become increasingly set by Middle Eastern producers.
On the demand side, China will continue to be the largest importer of sulphur. Additional acid production in China due to new smelter capacity may reduce the demand for sulphur burnt acid, at the same time that additional sulphur comes from refineries and sour gas production, while demand from phosphate producers remains stable or falls. But how far Chinese imports fall also depends upon closures in the pyrite-roasting acid sector. This has contracted, yet it has also proved remarkably resilient to previous forecasts of closure. Elsewhere, Morocco and other North African countries will be major consumers due to phosphate expansions, and Brazilian and Indian demand should increase slightly for the same reason.
The effects upon this forecast of the Covid-19 pandemic continue to be unpredictable – we are certainly in for a period of volatile prices. However, while, longer term, the return to some semblance of ‘normality’ is unlikely to affect demand for fertilizer or natural gas, industrial closures and potential delays to relaxing travel restrictions may continue to weigh heavily upon refinery producers.
