Sulphur 400 May-Jun 2022
31 May 2022
What goes up…
“Is this the start of a new commodity super-cycle?”
Sulphur prices keep on climbing. A quick check as I was writing this showed some indicators above $600/t, around four times what they were last year. As the title of this editorial suggests, what goes up must of course eventually come back down, but of course as always the question is: when?
Commodity prices were already at high levels before February 24th, when Russian tanks crossed the border into Ukraine, and the war and sanctions have added an extra spike of panic buying to the mix. But even before that happened some analysts, such as Goldman Sachs and JPMorgan Chase & Co, had been predicting that we were entering a new commodities super-cycle after the 12 year downturn following the slowdown in the Chinese economy and the banking collapse of 2008-09. Goldman’s head of commodities research, Jeff Currie, actually suggested last week that the current covid-related shutdowns in China had removed almost 2 million bbl/d of oil demand from the market and were masking underlying shortages, which would inevitably be exposed as China reopened. Indeed, he has been saying for a year now that all of the apparent supply-side issues we have seen over the past year; labour shortages, war, sanctions, bottlenecks in supply chains, shortages of truck drivers, covid-related disruptions etc, are merely symptoms being caused by the real story; that of rising global demand across the board. Some of this, he argues, comes from government policies to deal with the covid crisis, leading to a new era of commodity-intensive growth, as governments put greater emphasis on job creation and environmental sustainability rather than the focus on financial stability that followed the 2009 financial crisis, typified by the Green New Deal in Europe and president Biden’s $2 trillion American Jobs Plan.
Certainly this demand-led growth can be seen in metals markets, where the new focus on batteries is leading to rapidly rising demand for nickel, cobalt, lithium, copper and aluminium. Metals mining has seen structural under-investment after the collapse of the previous commodities boom, and is now racing to catch up. Trafigura estimates that 10 million t/a of additional copper will be required by 2030, while nickel demand is likely to almost double, and lithium demand may increase fivefold. This is good news for demand for sulphur, though it will also lead to more smelter acid trying to find a home.
The phosphate industry, the mainstay of demand for sulphur and sulphuric acid, also continues to grow, albeit at slower and more steady levels. While mature markets such as North America and Europe, and now increasingly China are seeking to gradually reduce phosphate overapplication, many regions of the world remain under-supplied, and growth is continuing, especially in Brazil and India. With phosphate prices high, there is no indication as yet that high sulphur prices are impacting upon demand.
So is this the start of a new commodity super-cycle? At the moment, the consensus seems to be yes, though one of the worries about the current boom is that this time the surge is making its way into the general economy, leading to the return of serious inflation after an absence of nearly 30 years. Interest rates will inevitably follow, and while some might suggest that this is merely a return to ‘normal’ after a decade of quantitative easing when governments pumped vast sums of money into the economy without causing inflation, and loans were cheap, it will also no doubt catch out those who over-borrowed during the 2010s. China was already facing a mountain of bad debt, especially in the property sector, as witnessed by the troubles of property giant Evergrande, which sailed close to insolvency last year. It is also possible that we are seeing the reverse of major trends that brought lower prices and more stable markets, such as a return to protectionism after several decades of globalisation; even if the Ukraine conflict were resolved tomorrow, permanent damage has clearly been done to east-west relationships. Globally, ageing populations may also lead to lower savings rates and higher inflationary pressures, while demographically we are nearing the end of a period when rapid labour force growth in developing countries and the increased participation of women in the jobs market also helped dampen increases in wages and input costs. Only continuing technological change seems to continue to point towards lower prices.
