INSIGHT: Global disruption puts sulphuric acid prices under further pressure

LONDON (ICIS)–Sulphuric acid pricing at ports across the world declined rapidly in the first quarter under pressure by the oversupply caused by a melee of downstream plant shutdowns, port disruption, and coronavirus-related lockdown measures.

As Q2 continues the outlook for the acid market remains downcast for many – and there’s no end in sight as disruption is set to  continue.

Despite the poor outlook, northwest European second-quarter sulphuric acid contracts are set to conclude at a rollover or very small decrease – not that this should be taken as a sign of brighter days ahead.

Many sources claim the region’s traditional supply/demand balance makes a rollover the most likely result for Europe, especially in a time where security of supply is paramount – and despite bearish price pressure on the acid market elsewhere in the world.

Views were split on the news, with one trader ruling another rollover – the fifth since Q2 2019 – as surprising, given acid price weakness outside of Europe.

“It’s incredible that [European] producers keep getting a rollover, with the macro situation as bad as it is,” one Swiss trader said.

A second trader discounted this view, adding: “It’s no surprise. [Feedstock] liquid sulphur supplies are tight, which is putting pressure on [sulphur] burners.”

Sulphuric acid is produced via two main methods – as a byproduct of base metal smelting, and via the burning of feedstock sulphur.

Although European acid buyers have previously pondered the prospect of importing acid from Asia, the logistics of such a trade route remain unworkable for many.

Potential European importers would require space to discharge tankers at ports, specialised holding tanks, and accompanying rail tanks or road transport – facilities many buyers lack, as they traditionally rely on domestic European producers for their tonnage.

“It’s just not doable, or [European buyers] would all be trying it,” the second acid trader remarked.

Such difficulties are likely to feel particularly cutting for European buyers, as acid prices on shipments from Asia have nosedived since the start of the year.

BUYERS MARKET
In Morocco, phosphate fertilizer major OCP was last week heard buying acid from Asia in the single-digits on a cost and freight (CFR) Jorf Lasfar basis.

The seller may be Mitsubishi or Sumitomo in Japan, according to sources, with these smelters having possibly pushed to redirect volumes originally set for shipment to India or southeast Asia, amid coronavirus-related disruption.

The three parties would not comment.

Netbacks on these Japanese cargoes would equate to around minus-$25/tonne FOB (free on board) Japan.

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OCP traditionally purchases large volumes of acid from Europe – even material considered off-spec, which it can still use in the production of its phosphate fertilizers.

Cheaper acid from Asia has clearly turned OCP’s head when it comes to source of supply, a trader suggested.

“[OCP] never misses a bargain,” it said.

Further afield, last week Indian fertilizer major Coromandel (CIL) has purchased a sulphuric acid spot cargo at $0.50/tonne CFR India, according to sources, with the origin of the volume likely to be the Philippines, for April delivery.

CIL was unavailable for comment.

At the start of January, Indian acid was priced around $30/tonne CFR.

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Sources also said Paradeep Phosphates (PPL) has purchased two cargoes from an Asian source at around $1/tonne CFR India.

DEMAND IN THE DOLDRUMS
The bearish pressure on Asian acid offers stems from one primary cause – weak downstream demand and the subsequent oversupply.

South Korean producers – which sell large volumes into China – saw this key market shut down entirely in end-2019 and into Q1 2020, leaving them with a surplus of acid to move in a hurry.

On the topic of negative netbacks, a source at one South Korean producer remarked: “If we have to sell that low, we just have to.”

Although Chinese acid demand is increasing as the country exits its coronavirus-related lockdown, domestic production is currently meeting these requirements with ease.

Japanese smelters, meanwhile, have seen their usual export customers in southeast Asia and India either shut down in an effort to control the pandemic or greatly reduce their demand as downstream industries stall.

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This is especially true of a key buyer in the Philippines, Nickel Asia and Global Ferronickel Holdings, whose Taganito nickel and iron mine traditionally consumes a large volume of Japanese acid.

Last week, a suspension order from the government meant the two firms’ holdings, including Taganito Mining, were to remain closed until at least 15 April.

That followed a maintenance period which started in mid-March.

The Taganito complex has since been given permission to reopen, according to local media, but because of manpower shortages the complex is not yet fully operational.

Neither party has yet confirmed the production status of the site.

In the long term, the question of how much lower acid pricing can slip remains to be answered.

“Everything is totally messed up,” says one trader.

“This acid market really sucks. How long or how low do we have to go to see the bottom?

“Certainly we are getting to a very dangerous point where [the] system might collapse. I cannot see smelters continue selling acid at super deep negative numbers for too long.”

Insight by Andy Hemphill