Section: CRUSU Comment

All is not well with the Chinese economy. Growth has slowed to a fraction of what it was, only 0.8% in 2Q 2023, and has not bounced back as expected as covid lockdowns were eased. Exports and imports are both falling, debt has reached 300% of GDP, youth unemployment is running at 20%, and the property market is collapsing, with huge property developers like Evergrande and Country Garden only avoiding bankruptcy via government arranged loan restructurings. Consumer prices have fallen year on year, raising the spectre of deflation, and productivity growth has fallen from 4.5% year on year in 2006-7 to around 0.8% today. The yuan is trading at a 16-year low against the dollar.

The modern sulphur industry is in effect a response to the environmental problems created by the presence of sulphur compounds in oil and gas, and the consequent release of sulphur dioxide when they are burned. The tens of millions of tonnes extracted, formed, traded and used for sulphuric acid production every year would otherwise be entering the atmosphere and causing health issues, especially in major cities, or returning as acid rain. One of the most recent step changes in sulphur recovery has come from the extension of rules on sulphur content of fuels that have been commonplace for road vehicles for many years into the maritime transport sphere. The International Maritime Organisation has mandated a reduction in sulphur content of bunker fuels to 0.5% worldwide, and 0.1% in busy shipping regions that have become designated emissions control areas (ECAs). Because bunker fuels were made from refinery residues, they often had high concentrations of sulphur in them; the limit before 2020 was 3.5%. As a result, a recent paper by two climate scientists calculates that global SO2 emissions have dropped by as much as 10% since 2020 because of the IMO limits. Given that atmospheric sulphur dioxide is responsible for an estimated 20-90,000 preventable deaths per year, this is surely a good thing.

A reader wrote to me recently asking if I had considered the impact of general artificially intelligent systems like ChatGPT on the publishing industry. As a matter of fact I had, but only, somewhat narrowly and selfishly, on how it might impact my own job in the future. But the dramatic shift in AI capabilities that we have seen in the past couple of years is certainly food for thought, and I’ve seen no end of articles predicting the death of the creative industries.

As it is an involuntary product, sulphur tends to be sold at whatever price the producer can get for it. This means that one of the major determinants of the sulphur price is the cost of transporting it to the customer, and in this regard one of the key indices is the Baltic Dry Index (BDI), which measures the cost of shipping dry bulk goods around the world, reported daily by the Baltic Exchange in London. The BDI has been on quite an excursion over the past couple of years – perhaps not as wild as the period from 2004-2009 when everyone wanted to ship goods to and from China, there was a shortage of vessels to carry it, and oil prices were at record highs - but eye-catching nevertheless.

It has long been known that sulphur dioxide aerosols can reflect sunlight back into space. On a large scale, this has tended to come from volcanic eruptions. The explosion of the island of Krakatoa in 1815 led to the following year, 1816, becoming known in Europe as ‘the year without a summer’. More recently, it is estimated that the eruption of Mount Pinatubo in the Philippines in 1991, the second largest eruption of the 20th century, sent around 18 million tonnes of SO2 into the stratosphere. Temperatures in the troposphere – the atmospheric layer closest to the earth – dropped by about 0.5°C as a result for about two years afterwards.

Sulphur markets suffered a correction in July-August that was more of a collapse; from $500/t to less than $100/t. Though it seems to have been something of an over-correction, and prices have moved back up since then, it is one of the most extreme price swings that sulphur has ever seen, comparable to the peak and precipitous fall in 2008. Indeed, at a time when commodity prices of all kinds have seen extremely high levels of volatility, sulphur has been more volatile still than just about all of them.

T he end of August saw a paper published in the Journal of the Royal Geographical Society by Dr Mark Maslin of University College London. Widely reported, it looked at the prospects for sulphur production in an era of declining fossil fuel use, concluding that there could be “a shortfall in the annual supply of sulphuric acid of between 100 and 320 million tonnes by 2040, depending on how quickly decarbonisation occurs”. It added that “unless action is taken to reduce the need for sulphuric acid, a massive increase in environmentally damaging mining will be required to fulfil this resource demand.”

The past couple of years have been quite the wild ride, with major global events dominating markets outside of the usual concerns of broad market supply and demand. It seems like a long time ago now, but this time last year, the price of a barrel of Brent crude was about $75. Go back two years, in the wake of the onset of covid restrictions, and that barrel would have cost you $40 (and just $25 a couple of months before that). In the wake of Russia’s attack on Ukraine, you could easily have paid $130, and it has been hovering around $110/bbl for the past few months. The last time oil spent any time at that level was in 2014, just before the Chinese economy ran out of steam and prices slumped by 70%.

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?

It was supposedly Lenin who said that there were “weeks when decades happen”, and the past few weeks have felt very much like that. The outbreak of conflict in Ukraine has sent shockwaves across the world and may have changed it permanently.