Guosen Securities released a research report stating that amid rapid growth in new energy demand, sulfuric acid consumption continues to expand at a moderate pace, driving sulfur demand and creating a global supply tightness. Sulfur-based sulfuric acid production remains the preferred process for leading phosphate fertilizer manufacturers, playing a critical role in securing sulfuric acid supply. With robust industry fundamentals in China's sulfuric acid-sulfur supply chain and tightening global supply pushing overseas contract prices higher, domestic sulfur prices are expected to rise further.
Key insights from Guosen Securities: 1. **Supply Constraints**: Sulfur primarily occurs as a byproduct of oil/gas extraction and refining. With slowing fossil fuel demand growth and anticipated declines in high-sulfur crude output next year, global sulfur production growth is projected to remain subdued. The IEA forecasts 2024 oil demand growth at just 1%, while natural gas consumption may rise 1.3% this year and 2% next year. Middle Eastern high-sulfur crude production faces headwinds from OPEC's decision to pause output increases through Q1 2026 and additional voluntary cuts. Sanctions on Iran have further reduced output. Russia's refinery attacks have disrupted gas-based sulfur production and exports, exacerbating supply shortages.
2. **Demand Drivers**: Approximately 93% of China's sulfur is used for sulfuric acid production, with half of global sulfuric acid consumed in fertilizer manufacturing. Other key applications include titanium dioxide, caprolactam, and lithium iron phosphate. The International Fertilizer Association projects 1-2% annual growth in phosphate fertilizer demand through 2027. Surging demand for power batteries and energy storage has driven 31% year-on-year growth in lithium iron phosphate output to 1.89 million tons in 2024. Indonesia's high-pressure acid leaching (HPAL) nickel projects, requiring ~30 tons of acid per ton of nickel, will add ~300,000 tons of nickel capacity by late 2026, further supporting acid demand.
3. **China's Market Dynamics**: Sulfur-based acid accounted for 42.5% (51.07 million tons) of China's 120 million ton sulfuric acid output in 2024, with phosphate fertilizers consuming 50.9% of domestic acid supply. China remains heavily import-dependent, sourcing 47% of its sulfur needs (9.95 million tons imported vs 11.07 million tons domestic production in 2024). Over 70% of domestic supply comes from oil refining byproducts, with gas-associated sulfur comprising ~20%. Major producers include Sinopec (8.34 million tons capacity), PetroChina (3.68 million), and Rongsheng Petrochemical (1.21 million).
4. **Price Outlook**: China's January-October 2025 sulfur production rose 6.5% YoY to 9.72 million tons, with imports up 2.2% at 8.7 million tons. Solid sulfur spot prices reached RMB 4,100/ton on December 4, a 165.37% YoY surge. With phosphate fertilizer prices rising and tight global supply pushing international contract prices higher, domestic sulfur prices are poised for further gains.
Risks: Weaker macroeconomic conditions; slower-than-expected phosphate fertilizer/downstream demand; faster-than-anticipated capacity expansions; technological advances reducing sulfuric acid consumption.
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