Voyager Commodities & Freight Market Insights: Chemicals

Bulk marine logistics and commodities trading are fundamentally connected. Arbitrage opportunities that arise from markets and supply chain imbalances directly impact freight rates. Reliance on the world’s shipping routes isn’t at the forefront of our minds until we experience an event that completely disrupts the global supply chain. With roughly 90% of worldwide trade being transported via sea and recent supply chain disruptions, the developments in this sector and how they have impacted the commodity trading space have become an important topic.

We’re currently experiencing high volatility in commodity prices as a result of supply shortages and chain disruptions, and as a result of commodity prices increasing, the cost of shipping is increasing as well. The market is precarious to say the least, for both the price of supply chain functions and the price of raw commodities. Overall, we’re experiencing much short-term market volatility in the industry.

In this series of posts on commodities market insights, Voyager has partnered with Acuity Commodities to bring fresh market insights. In this issue you’ll find more details on:

  1. sulphur;
  2. sulphuric acid;
  3. caustic soda markets. 


Sulphur

Following the most recent price crash, the global sulphur market has not fully stabilized yet, with different regions showing slightly different dynamics.

In China, sentiment has improved, which is in contrast to the sharp declines seen for most of July. There has been more interest to buy, notably from speculative traders at river ports. The need for some to cover short sales is understood to have resulted in traders changing hands, hence lending some upward support to CNY pricing.

The range moved up to CNY1,050-1,100/t EXW river this week, equivalent to the $130s/t CFR. However, Acuity has yet to fully discover sales above $120/t CFR. The CNY and CFR markets do not always move hand in hand. Crucially, it should be noted that the phosphate and industrial sectors in China are fairly poor, reflected by the recent decline in domestic sulphuric acid prices.

In the West, sentiment is also weak stemming from demand side worries. Rumors of high phosphate fertilizer stocks and potential cuts in sulphur consumption at fertilizer production sites all stem from an uncertain outlook for phosphates, which appears to be oversupplied. What Acuity understands is, some fertilizer producers have already communicated with suppliers of their plan to reduce consumption of sulphur and/or sulphuric acid.

The energy crisis in Europe is still unfolding with some industrial users of sulphur/sulphuric acid already having to adjust operating rates, affecting raw material consumption. It is worth noting the impact is felt by all players, for example Nyrstar will put its zinc smelter in Budel, the Netherlands under care and maintenance from September 1, 2022 until further notice.

There is no consensus among players where the sulphur market is heading, with talk of a universal price reversal simply too early. However, we did see higher bid levels against the Muntajat tender in Qatar – multiple bids were in the $80s/t FOB, of which a couple were as high as the low/high $90s/t FOB. With the $90s/t FOB not achievable in key markets at present, the bids suggest there may have been a number of players selling short during the price crash, while some bidders may be convinced the market is close to bottoming out. The high FOB price bids are also reflective of softening dry bulk freight rates.

Sulphuric Acid

Market sentiment is eroding. The CFR values in many regions are falling, including actual sales in India and firm offers into Chile and Mexico. This does not come as a surprise given the uncertain outlook of phosphate production as well as industrial sectors suffering from energy shortages. In regions facing energy shortages, we expect sulphur burners to be running as hard as possible to take advantage of co-generated power.

The issue with the market is, and continues to be, firm freight. With freight showing no signs of easing, pressure on FOB values is building quickly. In China, where production will grow again when the Daye expansion ramps up in September, was the first to respond with deep price cuts. Pressure is mounting in northwest Europe, although some smelters are adamant they are not needing to liquidate yet. Japan and South Korea are less exposed to the Moroccan and spot markets, and smelters are generally on the side lines.

As discussed before, a weak Chinese fertilizer market is a key reason why acid prices are falling rapidly. In 1H22, China produced around 8.08m t of P2O5, reflecting a drop of 4.3% year-on-year (yoy), according to the China Phosphate Fertilizer Industry Association. Of the P2O5 output, DAP production fell by 2.6% yoy, and MAP production down by 5.1% yoy. This week, Acuity understands operating rates of DAP plants in China generally fall between 40-50%. 

The industrial sector is also not in a good shape. On top of seasonally weaker demand during summer, hot weather conditions also forced many industrial plants to lower or curtail operating rates, including titanium dioxide plants.

Caustic Soda

Globally, there is a pricing disconnect between lower to receding values in the west versus values in the east. As an indication, northeast Asia is assessed at $500-550/t FOB while US Gulf Coast export values are heard in the $780-820s/t (dry) FOB range on recent business at lower levels. Western European pricing is higher with some offers heard well over $1,000/t (dry) FOB.

As a result of tighter spot tonnage from the US Gulf Coast, cargoes of northeast Asian origin have found some non-traditional trade routes to Latin American destinations such as Brazil. Participants expect this pricing disconnect to continue through the quarter with limited vessel availability and high freight rates from Asia. The production loss from European producers experiencing high energy prices affecting producer Electrochemical Unit (ECU) input costs will also provide price support. 

Acuity Commodities

This analysis is provided by Acuity Commodities, exclusively for Voyager. Acuity Commodities is a price reporting agency offering independent analysis into the global sulphur and sulphuric acid markets. Acuity provides publications delivered via email, all our market reports feature leading price assessments, trades, extensive freight assessments, a strategic Drivers and Restraints table looking two quarters ahead and insight on related markets. Real time market alerts are sent as major news breaks. Acuity’s user-friendly portal gives subscribers historical prices, reports and more. All this comes in an easy flat rate subscription covering multiple users.

About Voyager

Voyager Portal is an operations management platform for bulk commodity shipping. The SaaS application allows Voyager customers to collaboratively manage their operations with internal and external stakeholders in a unified environment.

By streamlining operations and data flows across organizations Voyager is able to help teams manage through exception, automate manual processes and deliver real-time insights.

The platform is built on a proprietary low-code workflow application making it the most flexible solution for bulk commodity shipping on the market. With Voyager, customers can manage the entire lifecycle of their operations including pre/post fixture and demurrage. Voyager Portal is backed by leading venture capital funds and counts fortune 50 companies as customers.

Click on the link for more information.

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