Sulphur Market Outlook The Outlook for the future Supply and Balance of the Global Sulphur Market Joanne Peacock, CRU International/BSC Creon Moscow December 2009 LONDON RALEIGH WASHINGTON MINNEAPOLIS BEIJING 31 Mount Pleasant, London WC1X 0AD UK Tel +44 20 7903 2132 Fax +44 20 7833 4973 www.crugroup.com
This presentation will review: Global Overview and Recent Market Developments The Economic Crisis Post-Crash The Supply Outlook: Global Market Middle East North America East Asia CIS The Balance Outlook Conclusions 2
Global Overview and Recent Developments: a) The Impact of the Global Financial Crisis
(million tonnes) Following a long period of market surplus, global deficits emerged in 2005-2007 as demand for sulphur soared... 4 Global supply surplus 3.4 Mt. 3 Prices at record lows. 2 1 0-1 Global supply deficit 0.7 Mt. Prices soaring. -2 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
US $ per tonne phosphate fertilizer prices rose 2000 1800 1600 Phosacid fob N. Africa DAP fob Tampa 1400 1200 1000 800 600 400 200 0 High grain prices, biofuels boost demand 1992 1994 1996 1998 2000 2002 2004 2006 2008
(thousand tonnes) and Chinese import demand continued to grow, rising almost 1 million tonnes Y-O-Y, between 2006-2007. 3000 North America Far East Middle East/FSU/Other 2500 2000 1500 1000 500 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 2008
During H2 2008, the global economic crisis caused demand destruction in the commodity markets Most major economies began to shrink, as demand and confidence plummeted. World trade slowed. Sulphur prices crashed as the prices of crude oil, metals, grains etc fell sharply. Cutbacks were announced by virtually all major phosphate producers. Sulphur started to back up in the pipeline. Distress sales became common.
and China and India had problems of their own. China A special export tax on fertilizer was introduced April-September 2008, and later extended to December 2008. The Olympics and the Sichuan earthquake depressed sulphur demand further. China became awash with sulphur, sulphuric acid and finished phosphate fertilizers. India The 2008-09 budget allocation for fertilizer subsidies was Rs 310 bn ($6.2 bn) however, the estimated requirement was Rs 1,200 bn ($24.2 bn) with the MRP for DAP at Rs 9,350/t ($188.50) fertilizer producers were reluctant to commit to raw material purchases at high prices.
($/tonne fob Ruwais) The Adnoc monthly contract price fell $785/t between July 2008 and February 2009 900 800 700 600 500 400 300 200 100 0 S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M 2006 2007 2008 2009
Global Overview and Recent Developments: b) Post Crash
$/bbl Sulphur production has fallen, affected by the drop in crude oil demand, weak refining margins and narrowing sweet:sour price differentials. 25.00 WTI - Maya Brent - Arab Heavy 20.00 15.00 10.00 5.00 0.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2007 2008 2009
Sulphur demand is generally weak, but China saves the day with record-breaking imports. ( 000 tonnes) Country 2008 2009 Period China 6,858 9,718 Jan-Oct +3,662 Brazil 1,857 1,224 Jan-Oct Morocco 2,328 1,673 Jan-Aug United States 1,850 827 Jan-Jul -2,854 Australia 634 371 Jan-Sep South Africa 774 494 Jan-Sep
S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D ($/tonne fob Ruwais) and prices have shown some signs of recovery. 900 ADNOC monthly contract price 800 700 600 500 400 300 200 100 0? Aug 09 $33/t Sep 09 $40/t Oct 09 $45/t Nov 09 $50/t Dec 09 $57/t 2006 2007 2008 2009
The Outlook for Production
(million tonnes) Annual brimstone production grows by 23.6 Mt between 2009-2017, at a CAGR of 3.9% Strongest growth is in Middle East, N America, E Asia and FSU. All growth is from involuntary production. RoW East Asia FSU Middle East North America 90 80 70 60 50 40 30 20 10 0 2007 2009 2011 2013 2015 2017
(million tonnes) Middle East production grows by 9.8 million tonnes between 2009-2017. Major increases in UAE (+4.5 Mt), Qatar (+2.1 Mt) and Saudi Arabia (+2.3 Mt). Many projects have suffered delays. More non-associated gas is urgently needed, especially in Saudi Arabia and the UAE. 25 20 15 10 5 Others Kuwait Iran Qatar Saudi Arabia UAE 0 2007 2009 2011 2013 2015 2017
million tonnes North America: +1.0 million tonnes 2009-2017 Canadian production from gas declines, offset by growth from oil sands. Production in the United States grows at CAGR of 1.7% 25 20 15 Canada USA 10 5 0 2007 2009 2011 2013 2015 2017
million tonnes East Asia: +5.4 million tonnes 2009-2017 Almost all regional growth from China. Most growth comes from gas production at a CAGR of 33% between 2009-2017 12 11 10 9 8 7 6 China produces >7 Mt/y by 2017 Oil etc Gas 5 4 3 2 1 0 2007 2009 2011 2013 2015 2017
(million tonnes) CIS: +3.5 million tonnes 2009-2017 Tengiz expansion completed Sep 2008. Kashagan on stream Q4 2012. Sulphur capped at 3,800 t/d. Storage of 4 Mt sulphur in covered block approved. Some growth in Russia (Orenburg). New sour gas plants in Turkmenistan and Uzbekistan. 14 12 10 8 6 4 2 0 Russia Kazakhstan Others 2007 2009 2011 2013 2015 2017
The Outlook for Balance
(million tonnes) The surplus production in the Middle East is the most important influence on the global market balance. 10 8 57 million tonnes to stocks globally, 2009-2017 6 4 2 0-2 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Conclusions
Conclusions It would seem that our forecasts of production may be too high and/or our projections of demand are too low, but the conclusions drawn from the analysis are valid: There is no new paradigm of sulphur pricing. We are heading for a period of chronically weak market conditions. Supply will need to be very carefully managed.