Sulphur Market Outlook

WHAT HAS CHANGED IN 2017?

IS IT HERE TO STAY?
DR. PETER HARRISSON
HEAD OF
SULPHUR & SULPHURIC ACID ANALYSIS
: +44 207 903 2249
: peter.harrisson@crugroup.com

November 2017
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2
Sulphur analysis at CRU

CRU SULPHUR ANALYSIS

 Sulphur Market Outlook
 Sulphuric Acid Market Outlook

FERTILIZER WEEK
 Weekly and daily price reporting, news, short
term analysis

CRU GROUP
 Independent analysis, consulting, prices and events across mining, metals and fertilizers

CRU FERTILIZER ANALYSIS

 Global team of analysts with specific focus on primary research and client engagement
 Wider fertilizer analysis team covers all nutrient areas with analysis, prices and costs
 Fertilizer team has 27 analysts based in 7 countries

3
Presentation Overview
REVIEW OF 2017
 Q3 PRICE RALLY
 INFLUENCE OF CHINESE BUYING ON MARKET BALANCE
 PRODUCTION/EXPORT PERFORMANCE IN 2017
 CAN THE PRICE RALLY CONTINUE?

MARKET OUTLOOK FROM 2018

 MEDIUM TERM DEMAND PROSPECTS
 REGIONAL OVERVIEW OF SUPPLY EXPECTATIONS

MARKET BALANCE OUTLOOK

 HOW WILL THE GLOBAL BALANCE DEVELOP TO 2022?

4
2017 – A normal year for prices until Q3
Sulphur prices, 2013-2017
Price, US$ /t

250

200

150

100

50

0
2013 2014 2015 2016 2017
Vancouver FOB spot FOB Middle East spot CFR China CFR India FOB Tampa

Data: CRU
Data – CRU Fertilizer Week 5
2017 – A normal year for prices until Q3
Sulphur prices, 2015-2017
Price, US$ /t weekly price change, US$ /t

250 25

20
200
15

10
150

100
0

-5
50
-10

0 -15
2015 2016 2017
w/w price change CFR China
Data: CRU
Data – CRU Fertilizer Week 6
China imports down 16% y/y in H1 2017, Q3 imports up 11% y/y
Monthly Chinese sulphur imports, 2015-2017
China sulphur imports, Mt
2.0
Q1 Imports Q2 Imports Q3 Imports Q4 Imports
2015 - 2.56 Mt 2015 - 2.74 Mt 2015 - 3.52 Mt 2015 - 3.17 Mt
2016 - 3.10 Mt 2016 - 3.47 Mt 2016 - 2.78 Mt 2016 - 2.61 Mt
2017 - 3.05 Mt 2017 - 2.44 Mt 2017 - 3.11 Mt 2017 - 2.60 Mt*
1.5

1.0

0.5

0.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Chinese Imports - 2015 Chinese Imports - 2016 Chinese Imports - 2017

Data: CRU, IHS GTA
Data – CRU, * estimate 7
Global importers show limited volume growth
Index of major Importers, 2015-2017 TOTAL IMPORT VOLUME
production index, Index 2015 = 100
 Annual global increase estimated at only 0.6
150 Mt in 2017

GROWTH MARKETS
125  Morocco, USA, Brazil and Indonesia increase
imports for phosphate demand
 Morocco buys greater share from Middle East
100
as CIS supply tightens
 USA increases seaborne imports
75 DECLINE MARKETS
 Chinese and Indian import demand declines
as local supply climbs
50
Brazil
USA

India

Australia
China

Morocco

Indonesia

 Australia imports fall due to closure of Ni

leaching capacity
2015 2016 2017
Data: CRU
Data – CRU 8
Contraction in key exporter supply availability
Index of major exporters, 2015-2017 CANADA/USA
production index, Index 2015 = 100
 Export decline focussed in Q2/Q3
150
 Very limited stock drawdown in 2017
RUSSIA
125
 Production stable but local demand increases
cut export volume

100 KAZAKHSTAN
 Increase in sales due to Tengiz with
Kashagan due in 2018
75
MIDDLE EAST
 Stable production but limited growth in
50
exports
USA

UAE
Russia

Kazakhstan

Arabia

S Korea
Canada

Saudi

Japan/

JAPAN/SOUTH KOREA
 Drop in exports from 2016 has tightened
2015 2016 2017
Data: CRU
availability in Chinese market
Data – CRU 9
Demand growing faster than supply in 2017
Sulphur market indicators, y/y change
y/y change, Mt

0
2013 2014 2015 2016 2017
Supply Demand Trade
Data: CRU

Data – CRU 10
Presentation Overview
REVIEW OF 2017
 Q3 PRICE RALLY
 INFLUENCE OF CHINESE BUYING ON MARKET BALANCE
 PRODUCTION/EXPORT PERFORMANCE IN 2017
 CAN THE PRICE RALLY CONTINUE?

MARKET OUTLOOK FROM 2018

 MEDIUM TERM DEMAND PROSPECTS
 REGIONAL OVERVIEW OF SUPPLY EXPECTATIONS

MARKET BALANCE OUTLOOK

 HOW WILL THE GLOBAL BALANCE DEVELOP TO 2022?

11
Demand growth focussed in few industries
Sulphur demand increase by country to 2022
demand, Mt

Data – CRU 12
Majority of consumption increases in three countries
Sulphur demand increase by country to 2022
demand, Mt

PHOSPHATE
Growth from capacity expansion

RUSSIA
Improved domestic demand
and currency benefit

AUSTRALIA
Loss of nickel
CHINA leaching operation
Substitution from pyrites to
sulphur and growth in industrial
demand

Data – CRU 13
Production growth is past the peak
Annual sulphur production growth
Production growth, Mt growth rate, %

4.1%
4.0 3.7% 4.0%

3.1%
3.0 3.0%
2.4% 2.5%

2.0 1.8% 2.0%

1.4%

1.0 1.0%

- 0.0%

-1.0 -1.0%
2016 2017 2018 2019 2020 2021 2022
East Asia Middle East CIS Americas Other y-o-y % change

Data - CRU
Data – CRU 14
Canada production weak and stock drawdown limited in Q3 2017
Canada sulphur production, 2016-2017
production, Mt
0.5
SULPHUR FROM OIL SANDS
 Syncrude production down 18% y/y
0.4
 Other oil sands production up 45% y/y
 Sector production is flat in 2017
0.3

0.2
SULPHUR FROM GAS
 Alberta gas sector down 3% y/y
 BC gas down 57% y/y
0.1

 BC production has declined from 0.6 Mt in

2015, 0.35 Mt in 2016 to only 0.15 Mt in 2017
0.0
Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17

Syncrude Other Oil Sands Alberta Gas BC Gas

Data – CRU 15
Regional demand expected to decline further to 2022
North America supply from gas
production, Mt SULPHUR FROM GAS
3.0
2.5  Decline in Alberta expected to continue
2.0 2.1
1.9 2.0 2.1  Production 3% y/y for y-t-Q3 17
1.5 1.9 1.8 1.7
1.0  US Gas declines in PADD 3 following plant
0.5 0.8 0.7 0.6 0.6 0.6 0.6 0.5 closure in 2016
-
16 17 18 19 20 21 22
USA - Gas Canada - Gas
Data: CRU
North Americas supply from oil/oil sands
OIL REFINING
production, Mt
12.0
 US refining supply continues to grow
10.0 2.5 2.6 3.0 3.1 3.1 3.1 3.1
8.0  Increases focussed in PADD 3
6.0  Harvey cut production growth in Q3
4.0 8.3 8.4 8.4 8.4 8.4 8.3 8.2  Syncrude production down by 18% y/y but…
2.0
-
 Oil sands supply still increasing with rebound
16 17 18 19 20 21 22 growth in 2018
USA - Oil Canada - Oil/Oil Sands
Data: CRU
Data – CRU, USGS, AER, Company reports 16
CIS production growth is in remote regions

RUSSIA
Decline in gas-based supply offset by
growth in refining (17-19) and Norilsk (2020)
Total supply growth (17-22) = 0.1 Mt
 Stock increase ~ 0 Mt/y up to 2020
KAZAKHSTAN
 Production up in 2017 from Tengiz and
Kashagan exports in 2018
 Total supply growth (17-22) = 1.0 Mt
NORILSK  Stock increase ~ 0 Mt/y

KASHAGAN
TENGIZ
ASTRAKHAN
KADYM
UZBEKISTAN TURKMENISTAN
 Kadym due to start in 2019 GALKYNYSH  Production well below capacity
 No exports, all balance added to stock  Supply to increased by 0.4 Mt in 2017 then
Supply growth (17-22) = 0.19 Mt 0.3 Mt in 2018
 Stock increase ~ 0.4 Mt/y Total supply growth (17-22) = 0.57 Mt
 Stock increase ~ 0.7 Mt/y to 2019

Data – CRU 17
Middle East Sulphur production forecast
Middle East sulphur supply growth, 16-22 SAUDI ARABIA
production, Mt
 Wasit increases in 2017-18, Jazan in 2020 and
Saudi Al Fadhili 2021
Arabia
KUWAIT
Kuwait  Shuaiba closed in 2017 with Clean Fuels Project
upgrades due in 2018.
Qatar QATAR
 Growth is tied to Barzan. Start date remains
Iran
uncertain, major volume likely delayed to 2019

IRAN
UAE
 Final phases of South Pars commissioning with
Others
Total/CNPC JV due in 2022

UAE
0.0 0.5 1.0 1.5 2.0
Gas Oil  Shah expansion forecast for start in 2022
Data: CRU

18
China supply outlook
China – Gas-based supply by operation
production, Mt
3 GAS PRODUCTION

2  Puguang operating down on historical levels

 Production optimised at Yuanba
1
 Chuangdongbei Phase I operating but Phase
0 II only in 2021
10 11 12 13 14 15 16 17 18 19 20 21 22
Puguang Yuanba CDB (Phase I, II) Other
Data: CRU

China – Oil-based supply by region OIL REFINING

production, Mt
5  Refinery start ups in 2017
4
 Yunnan refinery (0.24 Mt)
3
 Huizhou refinery (0.22 Mt)
2
1  Project pipeline is limited beyond 2019
0
10 11 12 13 14 15 16 17 18 19 20 21 22
North/North East/North West East South/Central South West
Data: CRU
Data – CRU 19
Presentation Overview
REVIEW OF 2017
 Q3 PRICE RALLY
 INFLUENCE OF CHINESE BUYING ON MARKET BALANCE
 PRODUCTION/EXPORT PERFORMANCE IN 2017
 CAN THE PRICE RALLY CONTINUE?

MARKET OUTLOOK FROM 2018

 MEDIUM TERM DEMAND PROSPECTS
 REGIONAL OVERVIEW OF SUPPLY EXPECTATIONS

MARKET BALANCE OUTLOOK

 HOW WILL THE GLOBAL BALANCE DEVELOP TO 2022?

20
Market balance peaks in 2019
Sulphur market indicators, y/y change
y/y change, Mt

1.0 0.89
0.78
0.67
0.56
0.50
0.5
0.35
0.15

0.0

-0.12

-0.5

-1.0
-1.05

-1.5
2014 2015 2016 2017 2018 2019 2020 2021 2022
Data: CRU
Data – CRU 21
Conclusions
RECENT MARKET TRENDS
 Global market tightness driven by short term factors. Fundamentals do not support
continuation of tightness
 Recovery in supply and slowing Chinese demand expected to trigger rebalancing

SUPPLY/DEMAND OUTLOOK
 Demand volume growth is strong although pricing remains weak in fertilizers to 2019
 Metals demand has limited growth or decline as projects remain out of the pipeline
 Production rebound expected in North America
 New supply focussed in Middle East and CIS

OUTLOOK FOR GLOBAL MARKET BALANCE

 Tightened balance trend in 2017 expected to reverse in 2018

Data – CRU 22
Sulphur analysis at CRU

CRU SULPHUR ANALYSIS

 Sulphur Market Outlook
 Sulphuric Acid Market Outlook

FERTILIZER WEEK
 Weekly and daily price reporting, news, short
term analysis

CRU GROUP
 Independent analysis, consulting, prices and events across mining, metals and fertilizers

CRU FERTILIZER ANALYSIS

 Global team of analysts with specific focus on primary research and client engagement
 Wider fertilizer analysis team covers all nutrient areas with analysis, prices and costs
 Fertilizer team has 27 analysts based in 7 countries

23