Buyers are reporting a “perfect storm” of supply and demand issues in the sulfuric acid market that has resulted in a huge jump in sulfuric acid prices in Purchasing’s monthly survey. Sulfuric acid prices in March hit a record high of $329/ton according to Purchasingdata.com after trading at $90/ton as recently as October. Buyer Bobbie Fallaw at Devro Castings received a 26% increase from a sulfuric acid supplier in March and says the increase is due to a combination of factors: rising sulfur prices, increasing demand for sulfuric acid from the fertilizer markets, and short supply of sulfuric acid.

A February story in the Ames (Iowa) Tribune says “the pricing of sulfuric acid, a manufacturing commodity used in the production of metals and fertilizer, has soared due in part to the increased additional demand from the manufacture of ethanol fuel.”

One buyer at a biotech firm in the Northeast told Purchasing both of his chemical distributor partners increased prices for sulfuric acid in the first quarter and “They both claim that producer costs have gone up due to higher production costs. Since I am not a huge user of sulfuric acid and prices have been steady for the past 18 months, I did not push back very hard regarding this latest increase. I expect prices to hold for at least the rest of the year.”

Automotive tier-one supplier Johnson Controls in January raised lead-acid battery prices by 4% and cited a dramatic jump in sulfuric acid prices as one of the reasons.

So, what’s behind the huge price increases? Increased demand for sulfuric acid from booming agriculturual and base metals markets has pushed the raw material price of sulfur through the roof in the U.S. while the U.S. market continues to see a long-term slowdown in sulfur supply from reduced production at oil refineries.

According to the U.S. Geologicial Survey data, U.S. sulfur production declined in 2007 for the third consecutive year. A 2008 USGS report says “Decreases in 2005 and 2006 were a result of slow recovery from the two hurricanes that hit the Gulf Coast region in 2005 and complete implementation of an acid-gas reinjection project at a major natural-gas processing plant in Wyoming, but decreases in 2007 were harder to pinpoint. Several oil refineries experienced temporary, unplanned shutdowns, but capacity utilization was relatively high. The average sulfur content of crude petroleum processed during the year was lower than expected, resulting in less sulfur to recover…Byproduct sulfuric acid production is expected to remain relatively stable unless one or more of the remaining nonferrous smelters closes.”

Key Compton, president of sulfuric producer Southern States Chemical in Savannah, Ga., says increasing sulfur prices are the primary reason for sulfuric acid prices to rise. “Suppliers are telling us that the increase of ethanol plants will further increase the demand for sulfuric acid,” Fallaw says.

A buyer at a fertilizer maker that buys more than 1,000,000 tons of sulfur a year tells Purchasing that fertilizer and crop prices in the U.S. are at all-time highs, which increases demand for those crops and the phosphate-based fertilizers used to grow them. Those fertilizers use sulfuric acid, so demand increases. The buyer tells Purchasing that prices of sulfur have ballooned dramatically in the past year as demand increased during a period of slower production from refineries in the U.S., some of which still has not rebounded since Hurricane Katrina. Prior to Katrina, the buyer says, refineries were actually paying companies to get rid of that sulfur, which is a fatal byproduct of the refinery process.

Compton says sulfuric buyers may be in for a long ride, as sulfur prices look to remain high for the remainder of 2008 and into 2009, pushing sulfuric acid prices up in the U.S. At a certain point, however, U.S. prices may match those internationally, giving buyers the option to source more sulfuric acid overseas and create more competition.

Demand for exports of sulfuric acid to countries like China and India that have dramatically increasing populations look to remain strong, but how long export prices will remain high remains to be seen. One supply chain executive tells Purchasing buyers should watch for tarriffs on sulfuric acid exports from China which could drive more domestic supply in that market.

At least one buyer of sulfuric acid, Frontera Copper in Toronto, says that a strike at a major sulfuric acid supplier has wreaked havoc on its supply and pricing in the first quarter. In a late February update, Frontera said the strike has been ongoing since July and the lack of sulfuric acid supply has impacted its mining capabilities.