A snug market—and spiraling prices
Gordon Graff -- Purchasing, 12/9/2004 2:00:00 AM
Tight supplies and a robust demand have combined to drive up sulfuric acid prices this year. And while some sulfuric producers are planning to boost their capacity, it could be months before these units go onstream. Meanwhile, sulfuric acid price tags are expected to continue their upward climb for at least another year, but at a moderating pace.
One of the biggest factors behind the current tightness in the sulfuric acid market is that "weak metals pricing the last couple of years has caused smelter cutbacks and closures," says Key Compton, president of Southern States Chemical, a major sulfuric acid producer based in Savannah, Ga. (Sulfuric acid is made by the burning of sulfur, which is recovered from oil refineries, or as a byproduct of metals smelting.)
A second constraint on reserves: reduced imports of the acid into North America. Strong demand and relatively high prices for sulfuric in China "have reduced the availability" of the acid elsewhere, says Compton.
"The inconsistent availability of smelter byproduct acid and imported acid" are the biggest sulfuric supply issues in North America, says Michael Civiello, market manager for sulfur products at the Eco Services division of Rhodia Inc. in Cranbury, N.J. Still, while stocks of sulfuric acid are a bit short, he adds that they are adequate for now. He says Rhodia is addressing the issue by investing heavily in operations and logistics at its six plants to ensure a steady flow of product to customers.
The recent uptick in pricing has spurred capacity expansions in sulfuric acid. For example, in Florida—a hub of sulfuric production because of the acid's use as an ingredient in the state's huge phosphate fertilizer industry, sulfuric plants that were idle or underutilized just a few years ago "are being brought back to their full capacity," says Trey Hamblet, a vice president in the chemicals group of Industrial Information Resources, Inc., a Houston-based market research firm. In a survey of Florida sulfuric manufacturers, the company reports that there was only one capital investment project, valued at $2.5 million, in 2004; by contrast, there are five capital projects, valued at $29 million, scheduled for 2005.
Where's the demand?
Consumption of sulfuric acid was 37.9- million metric tons in 2003, with even growth across all the sectors. That's reflected in U.S. Commerce Dept. figures that show a jump of more than 10% in sulfuric acid shipments between the second quarter of 2004 and the same period a year earlier.
Demand, however, is particularly strong in phosphate fertilizer production, which accounts for about 60% of the acid consumed, according to a 2003 estimate by SRI Consulting. Besides fertilizers, other outlets for sulfuric acid include production of unleaded gasoline, automobile batteries, dyes, explosives and cellulose fibers. The acid is also used to process metals and to bleach paper.
Many fertilizer producers manufacture their own sulfuric acid and use it captively, sometimes supplementing their needs with acid from the merchant market. Refineries are also increasingly recovering and reusing the sulfuric they use in their own operations. Not only is this more economical than buying the acid on the merchant market, it eliminates the need for costly disposal of the spent acid, as required by waste treatment regulations. DuPont is one company that has launched an enterprise to regenerate sulfuric acid at refineries. Jim Pawloski, market leader at DuPont Refinery Solutions, says his company's revenues from this business have quadrupled in the past three years, and are likely to double in the next three years.
Price hikes ahead
The supply and demand factors that have recently propelled sulfuric rates to new heights are likely to continue well into 2005, says Compton. Therefore, he adds, sulfuric prices "are headed higher." As for the magnitude of these hikes, he says "we're probably talking on the order of another 10%" during the next year. Such an increase would represent a cooling of the feverish price activity this year, which has seen sulfuric acid price tags skyrocket by up to 40%.
Rising oil prices are also contributing to higher sulfuric acid rates, mostly through fuel surcharges imposed by freight carriers, says Compton. The upward trend in shipping costs hasn't affected sulfuric customers who have long-term contracts, he adds. But he says the new freight rates "will be a driver in an increased pricing scenario" once those contracts are up for renewal.
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