"Sulfur prosperity in the long term systemically elevated, downstream chemical industry pattern ushered in reshaping"

Orient released a research report stating that the global energy transformation will drive sulfur demand while suppressing supply, leading to an inherent contradiction in sulfur supply and demand, and also bringing about a systematic uplift in its prosperity in the medium to long term. Even if the impact of geopolitical conflicts is completely eliminated, it will be difficult for sulfur prices to return to previous levels. Non-traditional sources of sulfur resources have limited compensatory ability, and these sources are unable to fully cover the input inflation of sulfur, serving only as a means for some leading companies to hedge cost pressures. The high level of sulfur prosperity will continue, reshaping the downstream chemical industry landscape. Key points from Orient include: Tightening global sulfur resource supply and demand trends Sulfur prices have continued to rise over the past year, reaching a new high after the intensification of conflicts in the Middle East earlier this year. Although the Middle East is indeed a major player in the global sulfur supply chain, geopolitical factors are not the only reason for the uptrend in sulfur prices. Prior to the recent events in the Middle East, sulfur prices had been on the rise due to the global depletion of sulfur in the medium to long term. In recent years, global sulfur (equivalent) production has remained around 84 million tons, with little to no growth and even a slight decline from its peak; traditional phosphate fertilizers account for close to 60% of downstream sulfur demand, providing a core rigid support, while the key marginal driver is the increase and iteration of new energy demand, mainly driven by the continued growth of Chinese lithium iron phosphate and Indonesian wet nickel production. By the end of 2025, new energy-related demand has accounted for over 10% of global sulfur demand, and there is still potential for continued growth in the future. The main traditional source of sulfur is as a byproduct of oil and gas desulfurization, with supply being more rigid, and future net growth in global refining capacity is extremely limited, with progress in the Middle East's high-sulfur gas field projects below expectations. Overall, the global energy transformation will drive sulfur demand while suppressing supply, leading to an inherent contradiction in sulfur supply and demand, and also bringing about a systematic uplift in its prosperity in the medium to long term. Even if the impact of geopolitical conflicts is completely eliminated, it will be difficult for sulfur prices to return to previous levels. Limited compensatory ability for non-traditional sources of sulfur resources The potential non-traditional sources of sulfur resources come from the recent layout of phosphogypsum sulfuric acid production processes by leading phosphate chemical companies, with a standard project including the production of 1.4 million tons of phosphogypsum, 600,000 tons of sulfuric acid, and 800,000 tons of cement ("1468" project). If all the phosphogypsum produced by phosphate fertilizer companies each year is used for this sulfuric acid production process, it could indeed cover the majority of China's sulfur import demand, providing a "perfect" solution for solid waste reduction and sulfur resource compensation. The bank's calculation considers an economically viable sulfur price of around 2500 yuan, which can be seen as the bottom support for marginal sulfur prices. However, its limitations lie in the high sensitivity of economic viability to energy prices, as well as the digestion capacity and prosperity of mature cement, and the difficulty in obtaining environmental indicators for such projects, all of which are significant influencing factors. Moreover, such projects generally require large investments, with the total investment for a "1468" project being approximately 1.3 billion, with a construction period of around one year, making it difficult for all leading companies to have the capability and willingness to invest in such projects. This results in the inability of this source to fully cover the input inflation of sulfur, serving only as a means for some leading companies to hedge cost pressures. Reshaping of the downstream chemical industry landscape The bank believes that the continued high level of sulfur prosperity will lead to a reshaping of the downstream industry in three main ways. Firstly, the competitiveness of alternative paths will increase, mainly in chloride-process titanium dioxide and yellow phosphorus. The profitability gap between chloride-process titanium dioxide and sulfuric acid-process titanium dioxide continues to widen, and with recent shutdowns and exits of overseas titanium dioxide industry leaders, China's chloride-process capacity is expected to become the most scarce capacity on the global titanium dioxide cost curve; the cost support of wet-process phosphoric acid makes the comparative advantage of thermal phosphoric acid increase, driving up the price elasticity of upstream yellow phosphorus. Secondly, the resilience of industry leaders will increase, with a positive outlook on the cost-hedging ability brought about by the diversification of sulfuric acid sources by leading phosphorus-based fertilizer companies, as well as the cost competitiveness of differentiated phosphate salts, leading to an overall restoration of profit expectations in the wet-process phosphate chemical industry. Thirdly, there will be opportunities for high barriers to export substitution, with a positive outlook on the opportunity for domestic wet electronic chemicals to enter the high-end field and increase in volume. Risk warnings Unexpected tightening of sulfur supply and demand; projects progressing slower than expected; uncertainties in calculations.