Sulfuric acid price bubble bursts as demand softens
By Gordon Graff -- Purchasing, 12/11/2008 7:00:00 AM
Sulfuric acid buyers can expect declining prices in the months ahead, but also some regional tightness due to plant outages. Sulfuric acid prices that rocketed to historic highs this year have topped out and are expected to retreat as the new year gets under way. One reason, say industry observers, is a slowing global demand for the acid in its key markets, metals and fertilizers. Another cause is the plummeting price of sulfur, a sulfuric acid raw material. Despite the slack demand, supplies of sulfuric acid are tight in certain regions, particularly the Northeastern U.S., due to plant outages and a strike by workers.
After hovering below $100/ton until the fourth quarter of 2007, sulfuric acid prices began a dizzying climb, reaching nearly $400/ton by September, according to Purchasingdata.com (see chart). But prices were off in October, and anecdotal evidence suggests this is not just a statistical blip. One sulfuric buyer in the Southern U.S. says he was offered shiploads of the acid at $400/ton over the summer, but by early November, the asking price had slid to $200/ton. At Southern Ionics Inc., a West Point, Miss. producer of industrial chemicals, purchasing manager Forrest Peeples says his sulfuric acid suppliers are asking $80-100/ton lower this quarter than in the previous one. "I'm holding off settling my contracts until things settle down a bit" in the price department, he tells Purchasing.
Not all buyers are in a position to capitalize on the relatively recent sulfuric acid downturn. Hardest hit are those with long-term contracts. One Canadian buyer of sulfuric says his suppliers boosted their prices by 26% in January 2008. Those prices, which were fixed for one-year, are now poised to jump by up to 200% in January 2009, when new contracts kick in.
At least prior to the latest hikes, he adds, "we have been able to pass along our increases to our customers." But big increases in sulfuric acid prices will be harder for producers to justify in light of recent market developments. A robust global demand for metals and phosphate fertilizers, which require sulfuric acid for their production, was largely responsible for the price inflation of sulfuric acid over the past year, notes Robert Boyd, an analyst at chemical consulting firm PentaSul in Houston. But now, he says, demand for metals and fertilizers is way down.
High metals prices, which kept sulfuric tags on the rise until recently, "have essentially collapsed," says Boyd, with copper and nickel trading at less than one-half and one-third respectively what they were at their peak last year. As for fertilizers, China is normally the biggest purchaser of DAP (diammonium phosphate) exported from the U.S. and the production of DAP and other phosphate fertilizers is the biggest single outlet for sulfuric acid. Less global demand for fertilizer means lower prices. For example, DAP, which was selling at the port of Tampa for $1,000/ton in October, dropped back to $875/ton a month later.
Withering prices of metals and fertilizer, coupled with a recessionary cooling of consumer demand in many industries, are putting downward pressure on sulfuric acid prices, Boyd says. Also taking the steam out of sulfuric acid pricing is the fall of sulfur, which has plunged by more than $400/ton, or 75%, since the third quarter of 2008.
According to Boyd, sulfur buyers bid up the price of that commodity over the past year to unrealistic and unsustainable levels, and now sulfur prices "are returning to normal." While not all commercial grades of sulfuric acid use sulfur as a starting material, the prices of sulfur and sulfuric acid have always been linked to some extent. Sellers of sulfuric acid used the run-up in sulfur to justify their huge price increases in the 2007–2008, says Peeples. But with the drop-off in sulfur, he adds, "there seems to be a decoupling of sulfur and sulfuric prices," with sulfuric producers resisting steep price-cutting.
But that decoupling is not total, and in general the decline of sulfur prices "is contributing to sulfuric acid price weakness," says Key Compton, president of Southern States Chemical, a Savannah, Ga.-based supplier of sulfuric acid. While prices of sulfuric may be softening in the U.S., he adds, "they are not coming down as quickly as sulfur." Nor is it likely that sulfuric tags will drop anywhere near the magnitude of sulfur over the next few months, notes another sulfuric supplier. He says that regional tightness of the acid in some parts of the U.S. will prevent the bottom from falling out of sulfuric prices.
The tightness is related to several interruptions of production at major sulfuric manufacturers. They include an explosion in August at a Beaumont, Texas sulfuric acid plant of Chemtrade Logistics, and a strike at a metals smelting plant of Xstrata in Ontario, which produces sulfuric as a byproduct. The biggest pressure on U.S. sulfuric supplies appears to be in the Northeast, says Peeples. Things are less constricted elsewhere, he adds, noting that he has had "no trouble" getting all the sulfuric needed for his Mississippi-based operations.
Those shuttered North American plants are likely to re-open shortly, say industry sources, adding more sulfuric acid to an already sluggish market. For purchasers this could be good news. Looking ahead over the next year, says Compton, "I think it's a safe bet that if you're a buyer of sulfuric acid today, you're going to see downward-trending prices."
| 1Source: PentaSul 2Source: Census Bureau, U.S. Dept. of Commerce |
|
| Estimated Demand (U.S., 2007)1 | 35.6 million metric tons |
| Growth (U.S., 2006–2007, by volume)2 | 0.7% |
| Manufacture (By feedstock, 2nd quarter, 2008)2 | Elemental sulfur - 83% |
| Smelting metallic sulfide ores - 8% | |
| Decomposition of alkylation and other spent acid - 7% | |
| Other - 2% | |
| Markets1 | Phosphate fertilizers - 60% |
| Industrial chemicals - 11% | |
| Agricultural chemicals - 10% | |
| Ore leaching - 7% | |
| Petroleum refining - 5% | |
| Rubber & plastics - 3% | |
| Pulp & paper - 2% | |
| Pigments - 2% | |
| Large primary producers (North America) | Akzo Nobel |
| Cargill | |
| Chemtrade Logistics | |
| East Penn Manufacturing Co. | |
| El Dorado Chemical Co. | |
| Grupo Mexico | |
| Irving Oil | |
| NorFalco (Xstrata) | |
| Rhone-Poulenc | |
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