Sulphur 392 Jan-Feb 2021
31 January 2021
It’s not over yet
“Economic forecasts for this year begin to look increasingly overoptimistic”
The turning of a new calendar year is a predictable waypoint in our lives. That is why it has always traditionally been a time for reflection on the past and looking to the future. Therefore, given how 2020 had turned out, perhaps there was an inevitable hope that the turning of the New Year and the start of 2021 might see an improvement in things in general, and of course the trajectory of the pandemic in particular, especially now that several vaccines have been approved for use in record time, and a massive programme of vaccination has begun across the world.
However, reality is rarely as neat and tidy as that, and while the vaccines offer some hope of a return to a more normal existence later this year, whatever that might eventually look like, at the moment Europe and North America are in the grip of a second wave of the pandemic even deadlier than the first, exacerbated by the closer proximity forced upon people by the cold winter temperatures, a spike due to the mixing and spreading of families during the holiday period, and now new mutant strains of the virus that have emerged in the UK, South Africa and Brazil, and which spread with even greater ease, though which fortunately do not seem – as yet – to have developed any resistance to the various vaccines.
This new more sobering reality makes many of last year’s economic forecasts for this year begin to look increasingly over-optimistic. A lot of projections for, for example sulphur supply and demand were based on assumptions that there would be a recovery which began in the early months of this year, in areas such as oil demand and hence refinery output, as well as a number of completions and start-ups of major projects during the year that had slipped from 2020 to 2021 because of the difficulty of getting engineers and equipment to the right places. These assumptions are starting to look less likely now, with the possibility that we may see continued supply disruption at least until 3Q 2021. Some Middle Eastern economies which are sites of major projects are seeing dramatic cuts in government revenue due to low oil prices, and are having to make economies, while in Europe and North America some marginal refineries are facing potential closures.
Demand, conversely, seems to have held up relatively well, contingent as it is mainly on agriculture, something that has had a much greater priority for governments everywhere – people do not necessarily need to drive or fly, but they do need to eat. This has meant that surpluses which have affected many fertilizer markets have begun to dry up, lifting prices.
Beyond covid, other geopolitical issues loom, such as how the Biden presidency will handle the ongoing trade dispute with China, which is also weighing heavily on the world economy; the nuclear ambitions of Iran, and the associated sanctions regime that has disrupted regional trade; and the move to alternative energy sources amid a planned return to the Paris climate agreement that the Trump presidency took the US out of. There is also the question of OPEC’s response to the oil demand collapse. Last year the cartel cut its output by 9.7 million bbl/d, in conjunction with Russia and the US, but relaxed this back to a 7.2 million bbl/d cut in the early days of January 2021 on the anticipation of a return of demand. Now however Saudi Arabia is talking about another 1 million bbl/d cut to stop inventories from building up.
Many optimistic forecasts are still out there. The World Bank is still predicting 4.3% global growth this year, and just last week PricewaterhouseCoopers was talking of a “Great Rebound” and a return to a pre-pandemic economic level for the world economy by the end of 2021. However, if the pandemic has taught us anything, it’s that the only thing that is certain is that it’s not over yet.
