Recent escalation of the Middle East conflict has not only impacted oil and gas supplies but also disrupted critical shipping lanes. This has led to tightening global sulfur supplies and a rapid increase in prices.
This week, two commodity economists from HSBC released a new report alerting investors to a risk currently overlooked by the market: a global sulfur shortage. Sulfur is a by-product of oil and gas production. The Middle East conflict has affected both oil and gas supplies and logistics, simultaneously constricting sulfur supply from its source and through transportation, thereby driving up market prices.
By 2025, the Middle East is projected to account for approximately 25% of global sulfur production and nearly half of the world's seaborne sulfur trade. The HSBC report indicates that since mid-February, international sulfur prices have risen by about 40%, reaching approximately $600 per ton.
Roughly 80% of global sulfur is converted into sulfuric acid. To analyze the impact of rising sulfur prices, it is useful to examine the uses of sulfuric acid: according to the HSBC report, about 60% is used for fertilizers, 19% for industrial purposes, and 14% for chemical production. Analysis suggests that constrained supply will affect multiple downstream industries.
Sulfuric acid is a crucial raw material for fertilizer production and is also a key input for the mining industry, particularly copper extraction. Copper itself is a fundamental material for the entire economy, widely used in AI data centers, electrical equipment, and various machinery.
In copper production, approximately 20% of global output utilizes the solvent extraction and electrowinning process, which is highly dependent on sulfur. Economist estimates show that for every $100 per ton increase in sulfur prices, the operating cost of producing copper rises by about 4%. This implies that since mid-February, copper production costs have increased by approximately 8%. Furthermore, the high-pressure acid leaching process used in nickel and cobalt production also relies on sulfur. HSBC estimates that a 10% increase in sulfur prices raises the production cost for this process by about 6%.
From a regional perspective, analysis indicates that Indonesia, Chile, and some African economies are likely to be the most affected.
As the world's largest nickel producer, Indonesia imports about three-quarters of its sulfur from the Middle East. Chile, the largest global copper producer and also the largest importer of sulfuric acid, will similarly be impacted. Additionally, the Democratic Republic of the Congo, a significant copper supplier, sources roughly 90% of its sulfur from the Middle East, and local production of both copper and cobalt is expected to be affected.
Finally, industry insiders warn that under conditions of constrained supply, where resources require careful allocation, governments are expected to prioritize food security. This would mean directing sulfur resources towards fertilizer production over the metals industry. This prioritization could lead relevant producers to reduce output or schedule maintenance shutdowns in the coming months.
Comments