2022 outlook uncertain as sulphuric acid contract talks continue

As delegates gather in Brussels for the European Sulphuric Acid Association general assembly, the market outlook for 2022 remains maddeningly vague - although this is unsurprising after a year defined by pricing upheaval.

Annual contract talks for the key Chilean market, quarterly contract discussions for supply-strapped northwest Europe and the continued pressure of high feedstock and freight costs are sure to be key talking points as delegates meet in person - in many cases for the first time in two years.

PRICING REBOUND

Pricing turmoil defined the global sulphuric acid market in 2021, as the oversupply and low prices of late 2020 were rapidly reversed by increased downstream demand, skyrocketing sea freight costs and spiking raw material and energy prices.

Early Q1 2021 saw the market shake off the after-effects of the first-wave of anti-coronavirus measures which saw downstream demand slow abruptly through 2020 as acid-consuming industries were ordered to close down and sulphur refineries slowed run rates on a lack of travel. However, smelters - immune to legislation as they were considered a vital industry - continued to run, leading to an oversupply.

In Q1 2021, as downstream industries resumed production, vaccine programmes reduced deaths, travel resumed and consumer confidence returned, acid buyers returned to the market; rapidly consuming what tonnes were available on spot.

However, these tonnes were quickly exhausted and when buyers called for more they found much of 2021’s expected acid production had already been marked for contract - not the much-needed spot tonnes essential to liquidity in the acid market.

Burner acid producers, meanwhile - traditionally the ‘relief valve’ for demand in the spot acid market - had been forced to slash run rates on a limited supply of liquid sulphur feedstock - an issue endemic to the industry and set to continue.

This “perfect storm” - combined with high freight costs - quickly led to an increase in acid offers and the emergence of unusual trade routes for individual spot cargoes, intra-coastal trading in India and repeated purchase tenders issued to limited offers.

BASE METAL BOOM

By Q2/Q3 2021 there was no sign of increased acid supply and offers remained firm as a result.

Meanwhile, base metals prices continued to climb - notably copper - which is vital in the production of batteries and electric vehicles.

As such, copper smelters in Chile - which view acid as a byproduct, and not their key export - opted to push planned maintenance later and later into the year, until many of the largest Chilean players were all set to go offline as one.

This led to concerns of a supply squeeze on tonnes into Chile in Q3/Q4, only marginally assuaged by threats of strike action at some of the copper powerhouse’s largest players, which did not occur after?government intervention ended the strained talks.

By Q4 2021 an uneasy equilibrium had been reached in the global sulphuric acid market: supply remains tight, demand remains firm, and with high feedstock costs unlikely to decline any time soon, offers will likely remain high - albeit at a stable level and not breaking new ground, as they have been all year.

MURKY WATERS

As 2022 annual talks continue in Brussels for contracts in northwest Europe and Chile, players now have the unenviable task of settling agreements amid an uncertain future and against contract values agreed in 2019 that appear hopelessly out of date.

Indeed, 2022 is not looking like smooth sailing for sulphuric acid players as many of the bullish influences seen throughout 2021 are likely to continue.

Tightness in upstream feedstock sulphur supplies is likely to remain an issue for burners. As such, less burner acid will be available to pick up the slack in spot demand.

Meanwhile, high copper prices - supported by increased demand for electrical vehicles and batteries - will pull acid away from spot to feed smelters.

The latter half of 2021 has also been thick with turnaround work at smelters in China, much of Europe and Japan, further restricting supply.

Add to this?flooding in Germany?and?maintenance issues?at several large-volume European players.

Also, special mention must be made for the UK, where INEOS’ decision to close its Runcorn burner unit has left the UK’s acid-consuming industries cripplingly short of material – even as producers in mainland Europe have no spot to spare to meet this demand.

Although INEOS sold its Bilbao burner unit rather than close it, the new owner is a relative unknown to the market and has yet to sell into the UK.

Finally, looking to the US market, 2022 contract discussions similarly remain the central focus of talks.

After several months of consistent major outages across the US and Canada, production is running mostly smoothly at present, although the market remains tight.

It is widely understood that mining major Rio Tinto will restart acid shipments from its Utah Kennecott smelter imminently, although this has not been confirmed by the company.

The smelter was shut after a molten copper spill on 21 September 2021, and the outage threw US Gulf acid trading into uproar.

Focus article by?Andy Hemphill