Sulfuric acid is primarily produced from sulfur, smelting gases, and pyrite (sulfur concentrate). Sulfur primarily originates from natural gas desulfurization and refining recovery. In the long term, with the rapid development of carbon neutrality and new energy, the demand for natural gas and crude oil is expected to be suppressed, thereby affecting sulfur supply. According to IEA statistics, the annual compound growth rate of global natural gas production from 2021 to 2025 is only 1.63%, and the growth rate of crude oil processing volume at refineries is just 1.90%. In the short term, under the Russian-Ukrainian conflict, European natural gas consumption is restricted, global crude oil prices remain high, and refineries' operating loads decline significantly, leading to a short-term decline in sulfur supply. The production of sulfuric acid from smelting gases mainly involves sulfur recovery during the smelting of copper, zinc, and lead. In recent years, the production growth of copper, zinc, and lead mines has been slow, with annual compound growth rates of 1.59%, 0.26%, and -2.32% from 2015 to 2021, respectively. Future expectations for copper mine production capacity are expected to increase, but it is unlikely to significantly boost sulfuric acid production. Therefore, based on our calculations, the global sulfuric acid supply from 2021 to 2025 is projected to be 30.07, 30.92, 31.56, 32.16, and 32.73 billion tons, with an annual compound growth rate of 2.14%, indicating a slow growth in supply.

Strong downstream demand is expected to widen the supply gap for sulfuric acid.

Global sulfuric acid demand is primarily concentrated in areas such as phosphate fertilizers and industrial acids. Amid the COVID-19 pandemic and the Russia-Ukraine conflict, rising crop prices have prompted major grain-producing countries to strengthen control over their domestic crops, making global food security a more pressing issue. Against this backdrop, global fertilizer demand is expected to continue growing. According to the IFA, from 2020 to 2025, the global demand for phosphate fertilizers is projected to increase by 1.8%. The Global Carbon Peak Plan has stimulated demand for battery metals like lithium, nickel, and cobalt, thereby driving up the demand for sulfuric acid used in leaching. According to IHS, the demand for sulfuric acid in the chemical industry is expected to grow at an annual rate of 2.9% from 2020 to 2035. Considering the increase in new wet-process phosphate projects domestically, our calculations suggest that global sulfuric acid demand will be 320.5, 328.3, 338.4, and 347.9 million tons from 2021 to 2025, with a compound annual growth rate of 2.68%, and the supply-demand gap is gradually widening.

Domestic sulfur industry chain is expected to maintain prosperity amidst import restrictions and accelerated wet-process phosphoric acid production progress.

In the short term, influenced by environmental supervision and the COVID-19 pandemic, the import volume of sulfur decreased significantly in January and February this year. As spring planting season approaches and downstream demand steadily rises, sulfuric acid prices have reached new highs. In the long term, with stable growth in demand across various downstream sectors, driven by environmental policies and the rapid development of new energy vehicles, the demand for wet-process phosphoric acid is increasing. From 2022 to 2026, the total newly commissioned wet-process phosphoric acid capacity of China's phosphate chemical companies will reach approximately 2.7 million tons, with配套 construction of 8.3 million tons of sulfuric acid facilities. China relies on imports for nearly 50% of its sulfur, and as the global sulfur market tightens, the domestic sulfur industry chain is expected to maintain high profitability.

Under high oil prices, the cost advantage of sulfuric acid production from pyrite becomes apparent.

In recent years, with the increasing environmental protection requirements, sulfuric acid production from sulfuric acid, which boasts features such as lower investment, shorter construction period, and better environmental benefits compared to pyrite, coupled with the rising recovery of sulfur from oil abroad, the sulfur market has ample resources. This has led many acid production companies that use pyrite as raw material to switch to sulfuric acid production from sulfur. Consequently, this has stimulated the import of sulfur, causing import volumes to rise annually, severely impacting China's pyrite industry. Currently, as international oil prices remain high, the cost of sulfur has surged rapidly, making the cost advantage of pyrite-based acid production increasingly apparent.

Sulfur Supply: Long-term Oil Demand Pressuring Supplies

Sulfur is primarily used in the production of phosphate fertilizers.

Sulfur, commonly known as sulfuric acid, is a pale yellow crystalline solid in block form and a pale yellow powder when in powdered form, characterized by a distinctive odor. It is soluble in carbon disulfide but not in water. Industrial sulfur primarily originates from the recovery of sulfur from petroleum, natural gas, oil sands, metallurgical recovery of sulfur, pyrite, and natural sulfur. Sulfur is a basic chemical raw material, mainly used to produce sulfuric acid, which is an essential chemical ingredient for the production of phosphate fertilizers. The sulfur-sulfuric acid-phosphate fertilizer is the main industrial chain in the application of sulfur. Additionally, sulfur is used in the production of titanium dioxide, carbon disulfide, insoluble sulfur, and other products, which are widely applied in various industries such as light industry and pharmaceuticals.

In contrast to foreign sulfur resources, which primarily come from the recovery of sulfur from petroleum and natural gas, followed by recovery from non-ferrous metal smelting and natural sulfur, China's sulfur resource structure is significantly different. Our country's sulfur resources mainly include sulfur recovered from petroleum and natural gas, associated sulfur from non-ferrous metal mines, pyrite, and also a small amount of recovered sulfur from anhydrite and other sources.

The primary sources of global sulfur resources are refining, natural gas, and smelting gases.

The primary sources of global sulfur resource production are oil refining, natural gas, and sulfur recovery from smelter flue gases, with a small amount coming from pyrite and natural sulfur. According to the China Phosphoric Acid Industry Association, with the enhanced environmental protection efforts worldwide, the proportion of recycled sulfur in the global sulfur production has increased to over 90% in 2018, while the proportion of other sulfur production such as pyrite and natural sulfur has decreased to 9.2%.

Major sulfur deposits are primarily located in countries such as China, the United States, Russia, and Saudi Arabia.

China, the United States, Russia, and Saudi Arabia are major producers of sulfur. According to the USGS, in 2020, global sulfur production reached 79.8 million tons, with China producing 17.3 million tons, the U.S. producing 7.89 million tons, Russia producing 7.53 million tons, and Saudi Arabia producing 6.5 million tons. The Middle East is a key supplier of sulfur globally and also serves as the global sulfur trade hub, with suppliers holding significant influence over the sulfur market. Amidst the Russia-Ukraine conflict, Russia's crude oil and natural gas exports have been hindered, affecting sulfur production. Additionally, the high prices of crude oil and natural gas globally have driven sulfur prices to soar since 2022. (Source: Future Think Tank)

Domestic crude oil processing volume in January and February saw a slight decrease of 1.07% year-on-year.

According to the National Bureau of Statistics, in January and February 2022, China's crude oil production experienced stable growth, with output reaching 33.47 million tons, an increase of 4.34% year-on-year. Crude oil imports totaled 85.14 million tons, a decrease of 4.9% year-on-year. The processing volume of crude oil was 113.01 million tons, down slightly by 1.07% year-on-year. Natural gas production continued to grow, with output reaching 37.2 billion cubic meters, up by 6.7% year-on-year. Natural gas imports were 19.86 million tons, a decrease of 3.8% year-on-year.

Domestic dependence on sulfur imports has been decreasing year by year.

China is a major consumer of sulfur, with a total apparent consumption of 17.02 million tons in 2021. However, the domestic production of sulfur is limited, leading to a high level of dependence on imports. In 2021, the domestic production of sulfur was 8.49 million tons, while imports reached 8.53 million tons, resulting in a foreign dependence rate of 50.14%. Since 2017, with the continuous increase in domestic sulfur production, China's reliance on imported sulfur has been decreasing year by year.

In January and February 2022, the domestic sulfur production reached approximately 1.4979 million tons, up year-on-year; consumption was 2.5033 million tons, down 17.32% year-on-year, with demand weakened due to the Winter Olympics and the high price of sulfur.

Inventory levels have hit historic lows.

As of April 12, 2022, the total inventory of sulfur at domestic ports stands at 1.095 million tons, dropping back to the level of 2018. Among them, Fangchenggang Port has a stock of 450,000 tons, Zhongshan Port has 190,000 tons, Zhanjiang Port has 190,000 tons, Beihai Port has 85,000 tons, and Longkou Port has 55,000 tons.

Sulfur prices are soaring, with inventory dipping to low levels.

Since 2022, the increase in international conflicts has driven up crude oil and natural gas prices, with sulfur prices surging rapidly due to cost support. As of April 15, 2022, the Brent crude oil futures settlement price was $111.70 per barrel, up 66.87% year-on-year; the NYMEX natural gas futures closing price was $7.32 per million British thermal units, up 174.92% year-on-year; and the sulfur price was 3,460 yuan per ton, up 141.96% year-on-year.

At the same time, domestic sulfur inventory has dropped to an all-time low, which also supports the high price of sulfur.

Increased sulfuric acid production capacity

From 2022 to 2024, domestic smelters and chemical companies are expected to add 8.01, 300, and 400,000 tons of sulfuric acid capacity, respectively. As phosphate chemical companies enter the lithium battery cathode material ferric phosphate field, the addition of wet-process purification facilities for phosphoric acid will help absorb the increased sulfuric acid capacity. Moreover, some companies are constructing sulfuric acid capacity, creating a strong demand for sulfur and pyrite. According to our statistics, phosphate chemical companies will add 8.3 million tons of sulfuric acid capacity, including 5.6 million tons from sulfuric acid production and 2.7 million tons from pyrite, which will respectively generate approximately 1.87 and 1.93 million tons of demand for sulfur and pyrite.

Under high oil prices, the cost advantage of sulfuric acid production from pyrite becomes apparent.

In recent years, with increasingly stringent environmental protection requirements, sulfuric acid production from sulfur, which boasts features like lower investment, shorter construction period, and better environmental benefits compared to production from pyrite, has gained popularity. Additionally, the rising recovery of sulfur from oil internationally has led to an abundant supply of sulfur resources. This has prompted many acid production companies that rely on pyrite as a raw material to switch to sulfuric acid production, thereby spurring imports of sulfur and causing a year-over-year increase in import volumes, severely impacting China's pyrite industry. Currently, as international oil prices remain high, the cost of sulfur has surged, making the cost advantage of pyrite-based acid production more apparent.