Changes ahead for the North American Sulphur market?

As expected, Mosaic’s decision to build a sulphur remelter is changing market dynamics and altering trade flows not only in North America but also in the Northern Hemisphere. During the past year we have seen granular sulphur shipments to Tampa not only from Kazakhstan and the UAE but also from Vancouver for the first time ever.

Mosaic’s purchase of a granular sulphur cargo from Vancouver surprised many market observers as up until now the only Canadian sulphur that arrived in Tampa came in liquid form by railway. This latest move by the buyer might mean the diversion of further tonnes away from the US in liquid form, a trend that emerged when Mosaic started up its new remelter (melting capacity: up to 1.5 million t/y). In the past Mosaic only bought liquid sulphur, much of which was railed to the buyer but it also received liquid sulphur in barges, trucks and seagoing vessels from a number of locations including Canada, Mexico and the domestic US market.

Mosaic took the decision to build the melter to hedge against increasing rail freight costs from Canada and diversify its sulphur supply sources. Indeed, it appears that shipping granular product from inner Canada to Vancouver then crossing the Panama Canal is still cheaper than rail freight overland. The lead time is estimated at about three weeks for both routes, but the cost advantage is clear as bulk freight rates are far cheaper than rail.

How this move will impact the domestic US and Canadian markets remains to be seen but there are various theories as to how this will play out. The refineries in Canada could choose to pour more sulphur into block, but it is costly and obtaining the necessary permits could take some time and any seller’s preferred option is to move the sulphur off-site in whatever form. Therefore, we can reasonably expect that those sellers that have the ability and necessary capacity to granulate will do so and export the excess sulphur through Vancouver. However, at current prices, even exporting through Vancouver could be at negative netbacks for those producers not located close enough to the port.

The question is where that extra sulphur that Mosaic is not consuming will be sold to? Markets such as Australia, New Zealand, Chile and China are unlikely candidates as they are already covered under other contracts and there are closer and lower cost suppliers that can easily compete against Canadian sulphur. So we might see a situation where the sulphur that used to be railed to Tampa directly in liquid form will be shipped around North America in bulk through the Panama Canal as it is still cheaper than overland transportation.

Rail freight between the US and Canada has increased substantially over the years, due to competition from oil tank cars which have been transporting crude from the Canadian oil sands operators to southern US states, using the same tracks and pushing freight costs up as well as causing congestion.

In the past it was estimated that a return journey between Tampa and Alberta would take about 21 days, but according to industry sources delays of several days are now common place. Although it is believed that Mosaic is paying on a delivered-to-Tampa basis and the freight costs are usually borne by the seller, Mosaic has been looking to ensure sufficient and timely deliveries of sulphur in the eventuality that the negative netbacks on export sales prove prohibitive for suppliers.

In the past when oil prices were higher, the oil sands operators could swallow up this extra cost and write it off against better margins from other segments of their operations. However, now that oil prices are at multiple-year lows and sulphur prices are also at a 6-7 year low, their willingness to incur this extra cost may be waning.

A second option has been to pour into block, but this is another costly exercise. Under usual circumstances producers tend to export even at negative netbacks because pouring into block then remelting and forming and shipping to port are all very costly. According to Fertecon estimates, the initial pouring into block then the breaking up/melting, granulating and transporting of sulphur from the northern Alberta blocks to Vancouver can be in the three digits. At this price there is very little incentive for the owners of these blocks to begin breaking them up, given that this would incur huge losses at current prices. In addition, the potential to incur such high costs in the future makes pouring into block the absolute last option for many producers.

As such, any producer’s first preference is to export and only under extreme pressure would they choose to pour into block. In the past the psychological barrier for pouring into block was lower than now, but back then inland freight was cheaper. At present with high rail freight to Vancouver, the breakeven point has also increased.

Given the competition from lower cost producers in the Middle East and improving domestic supply in China and India, the possibilities are limited to the already listed destinations. Whereas in the past Canada was the main global sulphur price benchmark, we might see a shift towards the Middle East and it is a very real possibility that Canadian exporters will need to follow the Middle East’s direction in the future.

For pricing details, freight rates and other information please contact the analyst, Janos Gal at janos.gal@fertecon.com, or visit here to for your FREE sample: https://fertecon.agra-net.com/home/sulphur/ 

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