Don’t hold your breath
China is the world’s primary elemental sulphur importer by a significant margin. In 2016, the country took 11.9Mt of elemental sulphur – significantly more than the 5.2Mt taken by Morocco, the second-largest sulphur importer globally. China accounts for about 36% of global sulphur trade.
In 2017, Chinese elemental sulphur import volumes are expected to decline significantly versus 2016. Chinese total sulphur demand is continuing to decline (albeit more slowly than we initially expected), pulled down by the phosphoric acid industry. At the same time, increased Chinese sulphur production is weighing on import requirements and has led to an uptick in port sulphur inventories in recent months (as imported material has struggled to find end-use markets). Increased domestic production has been driven by: the mid-2017 commissioning of a new refinery at Kunming; higher-than -expected pyrites acid production; and unexpectedly robust Puguang operating rates. Despite declining import requirements, Chinese cfr prices are expected to increase y/y as an annual average.
Elemental sulphur import volumes are expected to come down from 11.96Mt in 2016 to 11.00Mt in 2017 representing a reduction of 7.1% year-on-year. The 960kt y/y reduction in import demand will be driven by the following factors:
• Local elemental sulphur production increases, with new 2017 capacity at Kunming and Chuandongbei Phase II. (Note Chuandongbei Phase II is expected in Q4 2017 but may be delayed until Q1 2018. The full impact will only become clear in 2018.)
• Higher-than-expected gas processing rates at Puguang and higher-than-expected levels of pyrites production
• Total sulphur demand (all forms of sulphur) comes down, pulled down by weakness in the key phosphoric acid sector
Overall, we expect total sulphur demand in China to fall by 423kt y/y in 2017 and total elemental sulphur production to rise by 777kt y/y in 2017 – these will be the two main drivers of the reduced import requirement. (We note that pyrites production in China is expected to increase modestly y/y in 2017, based on the latest estimates. However, the general trend is toward lower levels of pyrites burning as the country works to wean itself off this polluting form of sulphuric acid production.)
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