Listen: Why sulfur markets face an upside risk from the energy transition

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Matt Hoisch:

Hello and welcome to the Platts Future Energy Podcast from S&P Global Commodity Insights. In this episode, we turn to sulfur and look how the energy transition is expected to both boost demand and constrain supply for this widely used commodity. I am Matt Hoisch, an associate editor on Platts Fertilizer market reporting team. I focus on sulfur and sulfuric acid markets and I will be your host. I'm also joined by two colleagues from our analysis team, Yuya Pan, a sulfur and sulfuric acid analyst, and Ruilin Wang, a senior copper analyst. Yuya, I'd love to start with you to really set the scene for some of our listeners who might not be as familiar with sulfur markets as you and I are. Can you discuss some of the major uses for sulfur and how it really comes into everyone's daily life?

Yuya Pan:

Sure. As many of you may know, sulfuric acid is one of the most commonly used in organic chemicals. We kind of group the sulfur into three big sectors. Sulfur accounted for 55% for fertilizer applications, and most of the major phosphate producing countries such as China, Morocco, Brazil, India are also the major sulfur importers. Another very interesting development these days is that around 12% of sulfur is consumed for metal leachants. Sulfuric acid is a commonly used reagent in leachants for copper and uranium productions, and also for high-pressure leachants for separate nickel and copper from the laterite ores. Around the 33% of sulfur or sulfuric acid is used for a wide industry and chemical applications. We have modeled over 10 end-use sectors. In terms of sulfur supplies, around the 95% of element sulfur is recovered from oil and gas industry. Middle East is one of the largest producing regions, accounting for one-third of a global supply, and also over 50% of global sulfur exports.

Matt Hoisch:

And one thing I want to hone in on that you mentioned is the increasing usage of sulfur for metals leaching. As I mentioned, I'm based on the fertilizer team, so a lot of my reporting focus is on applications for fertilizers, but a lot more of my focus is coming in on this metal leaching element. And Ruilin, that of course takes us to you and your focus on copper markets. Can you give our listeners a sense right now of the latest trends we've been seeing first off, in copper prices?

Ruilin Wang:

Thanks Matt, for your question. Recently the copper price really increased strongly. They surged more than 10% in April so far. Of course, one major price driver is the tight copper concentric supply, not only for this year, but also for the longer term that we are expecting millions of supply deficits. Another important driver is the optimism towards a healthier demand outlook, especially after manufacturing PMIs for march in both China and the US return to expansionary territory.

Matt Hoisch:

And can you go a bit more into the details on the demand that we're seeing for copper? What's really the geographic distribution? And then what are your projections over the near term at least, for how the energy transition is really going to shift this demand?

Ruilin Wang:

Yes, sure. For this year, we currently expect a global refined copper demand to increase by 3%, which is only slightly higher than last year because we expect demand in the US and Europe to be tempered by high interest rates while in the coming years we expect green energy transition to drive higher demand growth. And actually, when we talk about green energy transition, which is related to the solar, wind power and EV sectors, they have already been booming recent years. Take solar power as an example, newly installed capacity grow as high as 129% in China last year, contributing nearly 50% of the refined copper consumption growth. Just sharing our latest research result, which shows that the copper intensity of a solar power plant is about 2.7 times of the copper intensity of a conventional plant. Although I know other research shows higher copper intensity up to five times, for example. Apart from new energy sectors, what recently have been heatedly discussed is the artificial intelligence which would also contribute to increased demand for copper.

Matt Hoisch:

That 2.7 to five times the demand for copper number you mentioned. It just always sticks with me when I hear it. Because it really does underscore how radical transitioning to renewable energy will be for commodity markets like the copper market, if you're seeing a 270 to 500% increase. I'd love Ruilin, if you could really hone in on one area of copper development we're seeing that it intersects with this conversation on sulfur, which is namely the growth in copper mining in parts of Africa.

Ruilin Wang:

Yes, Africa is in range of copper oxide mine and usually a refinery is built nearby and directly use acid to leach the ore into copper cathode. We call this type of copper mine, SX-EW, which occupies around 22% of total mine production globally back to years around 2010. But in recent years, it has dropped slightly to 19%, mainly because of a decrease in production in Chile due to lower ore grade or some mines reaching the end of life. So although Chile used to be the top SX-EW mining country in the world, producing more than 60% of the global total, now its production share has dropped to around 30%.

And it has been surpassed by Africa because we all know that a lot of new mines have been developed and started by many Chinese companies in recent years. Now, more than 45% of the global SX-EW production comes from Africa in which DRC is the major contributor. From the refined copper perspective, we all know that China is the top producer, contributing more than 40% of the global cathode production. While the share is only 8 to 9% currently for African, SX-EW cathode, it is important to note that African market is small in terms of copper consumption and it exports most of its output. Major destination is China and some refined copper is also exported to other Asian countries, Europe and the Middle East.

Matt Hoisch:

It's interesting because on the sulfur market reporting team that I operate in, we actually have a new assessment we're launching, which is a CFR Southeast Africa sulfur price, that really is in direct response to these trends that you're outlining Ruilin, in terms of copper production and processing going on in DRC. In February, I was over in Cape Town actually for the Mining Indaba Conference doing some reporting and market engagement around this new price that we're developing. And the numbers I was hearing were something like 1.5 to 2 million tons of sulfur comes into DRC for this copper processing. And when you put that in the context of global sulfur trade sitting at around 34 million tons in 2023, I mean 1.5 to 2 million tons, it's about 5%, which is a not insignificant number. And the thing I'm really going to be interested in, I think from the sulfur side is how this new source of demand shifts international sulfur markets, especially when I consider most sulfur is produced over in the Middle East.

A lot of that is going over to China for fertilizer use. But one thing I'm hearing from market participants is that there are these buyers coming out of Southeast Africa who are willing to pay sometimes a bit more for those Middle Eastern cargoes. And I'm really going to be curious how this new source of demand over in Africa shapes the sulfur prices that we're seeing coming out of the Middle East, if they're competing with demand from the fertilizer sector. Yuya, I'd love to come back to you now for this second part of the conversation, which is really about supply. Because it's so interesting to me that while the energy transition will increase demand for sulfur, for metals processing to develop batteries and renewable energy, at the same time, most of the sulfur nowadays comes from the oil and gas that we're trying to get off of through the energy transition. So talk a bit about some of the modeling I know you've done to really understand what a green transition could mean for sulfur supply over the next decades.

Yuya Pan:

Sure. As you already mentioned, the energy transition will shift the investment from the conventional fossil fuel or oil and gas to the EV, including the battery metals. And our S&P Global climate change team has done extensive work to measure different decarbonization measures. We have incorporated two scenarios into our models. Under the best case scenario, we expect a board range of fundamental changes across different governments market and the society will set a term for a sustained long-term energy transition.

But the rebound in fossil fuel consumption post-pandemic will have a long-lasting impact on the structure of energy market. And also we have also examined the green rules. The world is expected to move towards a much more sustainable energy and a emission pathways. So in terms of sulfur supplies, as some of you may already know, the sulfur market has remained structurally oversupplied at this moment. And the global sulfur market is expected to turn from a surplus to a deficit in the next five years. And on this best case scenario, we expected the global sulfur market will see over 20 million tons of the deficit by 2050. Under the green rules, the supply shortfall could expand by another 30 million tons. So the different decarbonization measures could have a profound impact on surface supply over the long term.

Matt Hoisch:

Can you go a bit into more granular detail on the geographies of those different deficits under... Especially like you're saying, these more stringent green rule projections? Where would we see sulfur supply continue to come from and where would we see it really dwindle based on your modeling?

Yuya Pan:

Sure. The different decarbonization measures could intensify the global imbalance of a sulfur supply. And the Middle East under the best case scenario, will continue to drive the supply growth because this oil and gas industry is the biggest revenue generators for this region. Countries such as those in North America and Europe, which at the forefront of the decarbonization pathways with a more significant decline of sulfur supplies with more intensified decarbonization measures. And long story short, we think in the next decade, consumers need to increase investment to boost their farming capacities and also port facilities to diversify the procurement strategy. In a couple of decades, there will be a need in new investment in alternative sulfur resources to fill in the supply gap.

Matt Hoisch:

It's really interesting when I think a lot of sulfur actually used to be gotten through mining before the industry really switched to oil and gas recovery. Do you think we might see a resurgence in the kind of sulfur mines that really dominated in the earlier parts of the 20th or the 19th century, for instance?

Yuya Pan:

Yeah, sure. At this moment, only Poland and Iraq produce sulfur from the mining asset, but also some sulfur mining reserves in Sicily, in Italy and in parts of the United States. I expect to see some investment in the sulfur mining in the next decade.

Matt Hoisch:

Well, I already know we're getting a bit of a glimpse of the future in the European sulfur markets that I cover. It's not quite because of the energy transition scenarios that you're outlining, but the war between Russia and Ukraine has driven a lot of European refiners to shift away from more sour Russian crudes, which based on my reporting has meant that there is less sulfur production in Europe. And one of the results of that has been recent contract negotiations for European liquid sulfur contracts have seen something like a 10 to 20% increase on Q-2 levels versus Q-1 levels.

Recently, I was speaking with one participant who described the landscape as a nightmare in terms of having to get sulfur in Europe. So it could be a harbinger of things to come based on the model that you just explained, Yuya. Well, to close out, I would love to get both of your takes Ruilin and Yuya on some of the projects you're keeping an eye on over the next 5 to 10 years that you think will have some market forming capacity in the battery metal space and the sulfur space. Ruilin, I'd love to start with you. What are some of the battery metals projects you're keeping an eye on in the near term?

Ruilin Wang:

Yeah. For copper, we expect Tenke mine of China, Moly and DRC will continue to ramp up strongly, especially for this year. And this is the major SX-EW mine expansion. There are also projects in DRC, the US and Chile, but I would say these projects are all small ones with copper production lower than 50,000 metric tons per year. And the situation for cobalt is similar as it usually coexists with copper SX-EW mines. And for nickel, the most notable upcoming high-pressure acid-leach nickel projects located in Indonesia. One is PT. HUASHAN NICKEL COBALT projects of Huayou Cobalt. It is expected to start in Q4 this year. And another is Pomalaa projects. Huayou is also one of the owners, and the project will be started in 2026. Each of these two projects has a capacity of 120,000 metric tons per year of contained nickel. And finally, I want to comment on lithium. We know that sulfuric acid is used to leach lithium spodumene and clay deposit. More spodumene supply will come from Africa while clay deposits are being developed in North America. So both regions will become more prominent lithium supply regions.

Matt Hoisch:

Yuya, I'd love to know the same from you on the sulfur side. What are some of the major projects you're keeping an eye on in the near term?

Yuya Pan:

There are some expansions of phosphate capacity in Morocco and India, which could support wonderful sulfur. And in terms of sulfur supply, there are two major sour gas project, including in Saudi Arabia and the UAE. But the timing of this project is largely dependent on how the government in the Middle East react to energy transition trend.

Matt Hoisch:

Well, I know that all of those projects are something we're going to be keeping an eye on in Commodity Insights, either through the forward-looking analysis side or the slightly more present-focused market reporting side. I know on the sulfur team we have assessments looking at imports and exports throughout the Middle East, Asia, Americas, EMEA. So listeners, if you're interested in learning more, please do check out some of our offerings. I recently wrote an article in the Commodity Insights magazine looking at one more area of this, which is lithium-sulfur batteries. So do give that a read if you're curious about that interesting development. We will keep an eye out on all ways that the energy transition intersects with all commodity markets including of course, the sulfur markets. I want to give a big thanks to Yuya and Ruilin for joining me in this conversation. Of course, I would also love to thank you, the listener for giving us your time. This episode was produced by Felix Fernandez in London.