Global energy transition is driving sulfur demand while simultaneously constraining its supply, creating an inherent supply-demand imbalance that will lead to a sustained, systemic increase in sulfur's market strength over the medium to long term. Even if the impact of geopolitical conflicts is completely resolved, sulfur prices are unlikely to return to previous levels. Compensation from non-traditional sulfur resources is limited, making it difficult for these sources to fully offset the imported inflation in sulfur costs; they can only serve as a means for some leading companies to hedge against cost pressures. With sulfur market strength expected to remain high, the industrial landscape for downstream chemical products is set for a reshaping.

Global Sulfur Supply-Demand Tightening Trend Intensifies

Sulfur prices have been rising for over a year and reached new highs following the escalation of Middle East geopolitical conflicts earlier this year. While the global sulfur supply chain does have significant exposure to the Middle East, geopolitics is not the sole reason for the market's strength. Even before the recent Middle East events, sulfur prices were on a sustained upward trend, fundamentally driven by a medium-to-long-term global sulfur destocking cycle. On the supply side, global sulfur (equivalent) production has remained around 84 million tons in recent years, showing almost no growth and even a slight decline from peak levels. On the demand side, traditional phosphate fertilizers account for nearly 60% of downstream sulfur demand, providing its core rigid support. The most crucial marginal driver, however, is the increase and iteration of new energy demand, primarily from the continuous growth in China's lithium iron phosphate and Indonesia's hydrometallurgical nickel production. By the end of 2025, new energy-related demand is expected to account for over 10% of global sulfur demand, with potential for further sustained growth. The primary traditional source of sulfur is by-product from oil and gas desulfurization, which has relatively rigid supply. Future net growth in global refining capacity is extremely limited, and progress on Middle Eastern high-sour gas field projects has also fallen short of expectations. Overall, the global energy transition is pulling sulfur demand while suppressing its supply, creating an inherent contradiction that will lead to a sustained, systemic uplift in sulfur's market strength. Even if geopolitical influences are fully removed, sulfur prices will struggle to revert to historical levels.

Limited Compensation Capacity from Non-Traditional Sulfur Resources

A potential non-traditional source of sulfur is the phosphogypsum-to-sulfuric-acid process, which leading phosphorus chemical companies have recently been actively deploying. A standard project involves producing 600,000 tons of sulfuric acid and 800,000 tons of cement from 1.4 million tons of phosphogypsum (a "1468" project). If all phosphogypsum generated annually by phosphate fertilizer enterprises were used for this process, it could indeed cover the vast majority of China's sulfur import demand. This represents a "perfect" solution that achieves both solid waste reduction and sulfur resource compensation. Analysis suggests an economically viable sulfur price for this process is around 2,500 yuan, which can be considered a floor support level for marginal sulfur prices. However, its limitations lie in the high sensitivity of its economics to energy prices. Furthermore, the absorption capacity and market conditions for the resulting cement clinker, as well as the difficulty in obtaining energy consumption and environmental permits for such projects, are significant influencing factors. These projects also typically require substantial investment; the total investment for one such "1468" project is approximately 1.3 billion yuan, with a construction cycle of about one year. Consequently, often only leading companies possess both the capability and willingness to invest in and build such projects. This makes it difficult for this source to fully cover the imported inflation in sulfur costs; it can only serve as a tool for some leading firms to hedge against cost pressures.

Downstream Chemical Product Industry Landscape Set for Reshaping

The view is that sustained high sulfur market strength will reshape downstream industries primarily in three aspects. First, it enhances the competitiveness of alternative pathways, mainly the chloride process for titanium dioxide and yellow phosphorus. The profitability gap between chloride-process and sulfate-process titanium dioxide continues to widen. With frequent shutdowns and exits among overseas titanium dioxide leaders in recent years, China's chloride-process capacity is expected to become a scarce, low-cost capacity on the global titanium dioxide cost curve. The cost support for wet-process phosphoric acid improves the comparative advantage of thermal-process phosphoric acid, driving price elasticity for upstream yellow phosphorus. Second, it strengthens the operational resilience of leading companies. There is optimism regarding the improved cost-hedging capabilities of leading compound fertilizer companies through measures like diversifying sulfuric acid sources, as well as their ability to pass on costs for differentiated phosphate products. Overall, this is expected to lead to a recovery in profit expectations for the wet-process phosphorus chemical sector. Third, it presents opportunities for high-barrier export substitution. There is a positive outlook on the opportunity for domestically produced wet electronic chemicals to penetrate high-end fields, achieving both volume and profit growth.

Risks include sulfur supply-demand tightening falling short of expectations; project progress falling short of expectations; and uncertainties in calculations.