Sulfur: Reassessing the Short-Term Valuation Correction and Long-Term Fundamentals

September 20, 2026

FDD-global.com

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Guide

Highlights at a glance

The sulfur market has hit a point of divergence, with prices falling sharply due to a temporary collapse in demand timing rather than a recovery in supply. Structural shortages persist, driven by Middle Eastern supply cuts, a Russian export ban, and rising demand from the new energy sector. Despite the price decline, global sulfur inventories remain historically low. Elevated import costs and increasing demand from sectors like lithium battery production may sustain high price floors. Learn about short- to long-term market outlooks and risks amidst structural changes and energy sector impacts.

The sulfur market is currently at a critical point of divergence. Prices are falling at an accelerating pace, but the decline is being driven by a temporary collapse in the timing of demand rather than a substantive recovery in supply. The structural shortage in the global sulfur market, characterized by contracting Middle Eastern supply, the continued Russian export ban, and rigid growth in sulfur demand from the new energy sector, has not been weakened by the current price decline. Instead, lower prices have created a firmer foundation for long-term support.

The market is not witnessing the invalidation of the shortage thesis. Rather, it is undergoing a valuation correction driven by a mismatch in the timing of demand and the fading of geopolitical risk premiums. The depth of this correction will depend on when phosphate fertilizer demand recovers, while its floor will be jointly defined by the implicit rigidity of import landed costs and the vulnerability created by extremely low inventories.

01 Market Conditions: The Decline Is Accelerating, but Absolute Prices Remain Historically High

Sulfur prices declined at a notably faster pace this week. As of September 18, the mainstream reference price for granular sulfur at Zhenjiang Port in the Yangtze River region had fallen to RMB 7,200/tonne, down a cumulative RMB 300/tonne from RMB 7,500/tonne in the same period last week. The Dafeng Port market declined in tandem. Cargo holders were forced to wait, trading activity was subdued, and sporadic buyers aggressively pressed for lower prices. Over a longer observation period, mainstream granular sulfur quotations at Zhenjiang Port plunged from RMB 8,750/tonne in the final week of August to RMB 7,500/tonne, while the lowest actual transaction price reached RMB 7,300/tonne. This represented a decline of nearly 40% from the historical peak of RMB 12,000/tonne in mid-June. However, it must be clearly recognized that even after this correction, the price of RMB 7,200/tonne remains nearly twice the 2025 annual average and almost six times the 2024 low.

Prices are declining, but the absolute sulfur price remains within a historically extreme range. This fact is the most important prerequisite for understanding the current market: the decline represents a correction from elevated levels, not a return to normality.

02 Drivers of the Short-Term Decline: A Collapse in the Timing of Demand, Not a Supply Recovery

2.1 Systematic Decline in Phosphate Fertilizer Operating Rates Causes Demand to Stall

The most direct pressure behind the current sulfur decline comes from the severe contraction of the downstream phosphate fertilizer industry. As of mid-September, capacity utilization in the MAP industry had fallen to 47.91%, while the theoretical profit on MAP production in Hubei stood at negative RMB 1,686/tonne, indicating continued heavy losses. DAP capacity utilization was only 43.95%, a historically low level for the period. Conditions in the compound fertilizer industry were even more severe, with capacity utilization at only approximately 34%. Most plants were consuming previously purchased raw material inventories, while new-order activity was extremely limited.

Production cuts among phosphate fertilizer producers are a passive consequence of the pricing mechanism. The surge in sulfur prices during the first half of 2026 raised sulfur's share of phosphate fertilizer production costs from the normal range of 25%-32% to 55%-60%. Meanwhile, the suspension of exports caused MAP and DAP export volumes to fall by 56% and 88% year on year, respectively. Under the dual pressure of losses on every tonne produced and suspended exports, industry-wide production cuts and maintenance shutdowns became a common strategy.

However, the apparent disappearance of phosphate fertilizer demand is the result of price suppression, not the permanent withdrawal of end-user agricultural demand. Essential global agricultural demand for phosphate fertilizers has not disappeared. Once sulfur prices retreat to a level at which phosphate fertilizer producers can restore profitability, suppressed operating rates will recover and sulfur demand will regain elasticity.

2.2 The Reluctance to Buy in a Falling Market Creates a Negative Feedback Loop

The price decline itself is becoming a catalyst for further declines. Following consecutive reductions, downstream buyers are generally waiting on the sidelines. Sporadic prospective buyers are aggressively pressing for lower prices, forcing cargo holders to adjust their offers further. End-user restocking ahead of the National Day holiday has generally fallen short of earlier market expectations. Following the impact of expensive raw materials during the first half of the year, downstream companies' risk appetite has declined significantly, making large-scale concentrated stockpiling unlikely.

The market's central conflict can currently be summarized as a repeated contest between supply-security policies suppressing demand and geopolitical risks supporting international prices. In the short term, geopolitical developments continue to dominate pricing. However, domestic spot transactions remain subdued, making broad fluctuations at high levels the most likely scenario.

03. Supply: The Contraction Is Structural and Will Not Reverse Because of Falling Prices

3.1 The Global Supply Contraction Is Rooted in the Energy Transition, Not Short-Term Disruptions

More than 90% of global sulfur output is produced as a by-product of oil and natural gas refining. The replacement of traditional energy sources with new energy is systematically reducing demand for high-sulfur fuels, constraining the potential for incremental refinery by-product sulfur supply over the medium and long term. The source of this supply contraction is structural and will not automatically be repaired by fluctuations in sulfur prices.

Geopolitical factors have further intensified the rigidity of the supply contraction. Approximately 45% of global seaborne sulfur trade passes through the Strait of Hormuz. Continued geopolitical conflict has damaged approximately 30% of refining capacity in traditional major exporting countries. Instability in Middle Eastern supply has drained liquidity from the spot market, frequently leaving quotations without corresponding transactions. Indian refineries have voluntarily suspended exports, while Türkiye continues to enforce controls on sulfur exports, substantially reducing the volume of spot cargoes available for global trade.

3.2 Russia's Ban Continues, Offering Very Limited Marginal Relief

On June 25, 2026, Russia signed Decree No. 785, extending its temporary sulfur export ban through December 31, 2026. In principle, the decree prohibits exports of liquid, granular, and lump sulfur. An amended resolution, No. 1059, issued on August 21, introduced an exempt export channel for low-grade industrial sulfur, subject to a total quota of 300,000 tonnes. However, compared with Russia's previous annual exports of several million tonnes, a 300,000-tonne quota for low-grade sulfur is negligible relative to the global supply-demand gap. No substantive easing has occurred on the supply side.

3.3 Domestic Output Recovers Slightly, but Structural Tightness Remains Unresolved

China's weekly sulfur output reached 206,600 tonnes in early September, up 2.86% from the previous period, with notable supply increases from some producers in East China and Shandong. However, this marginal recovery cannot change two structural realities. First, by-product sulfur from China's three major state-owned oil companies is subject to targeted supply-security policies for the fertilizer sector, limiting the volume entering the open market. Second, China relies on imports for more than 50% of its sulfur requirements, leaving domestic supply adjustments highly constrained by the international market.

04. Inventories: Extremely Low Levels Magnify Price Vulnerability

Port inventories provide the clearest indicator of whether the shortage is genuine. As of September 18, total sulfur inventories at China's major ports stood at 926,800 tonnes, including 380,000 tonnes at Fangcheng Port, 200,000 tonnes at Zhanjiang Port, and 210,200 tonnes at Zhenjiang Port. These three core distribution ports accounted for the vast majority of total inventories. Although the current level has recovered from the historical low of 750,000 tonnes recorded in June and July, it remains only about half the conventional inventory midpoint of 2 million tonnes seen in previous years.

Port inventories were down 59.94% year on year. The divergence in inventory distribution is also noteworthy. Most cargoes are concentrated at core ports, while some smaller ports have virtually no stock, meaning regional spot shortages still occur periodically.

The essential implication of extremely low inventories is that the market has no buffer capable of absorbing even a medium-sized supply disruption or demand surge. At these inventory levels, price sensitivity to marginal changes is amplified dramatically. The current retreat from peak prices partly reflects the release of previously accumulated stocks and the unwinding of speculative positions following an easing in geopolitical sentiment. However, this does not change the fact that inventories remain dangerously low. If tensions in the Middle East intensify again or phosphate fertilizer demand is released on a concentrated basis, upside price elasticity will be far greater than the market's downward momentum.

05. Medium- and Long-Term Supply-Demand Gap: Data Point in the Same Direction

5.1 Estimated Shortfalls

Estimates from several institutions point in the same direction. Guomao Futures estimates that China's marginal sulfur supply-demand shortfall will reach 3.29-4.19 million tonnes in 2026, while the global shortfall is expected to exceed 5 million tonnes, marking the peak of the 2025-2027 cycle. SDIC Securities estimates shortfalls of 300,000 tonnes, 5.13 million tonnes, and 4.05 million tonnes for 2025, 2026, and 2027, respectively, making 2026 the year with the largest deficit.

The factors driving these shortfalls, including contracting Middle Eastern supply, surging demand from Indonesia's hydrometallurgical nickel industry, and expanding phosphate fertilizer capacity in Southeast Asia, will not fundamentally reverse before 2027. Leading overseas phosphate fertilizer producers have warned that the global sulfur shortage may persist through 2027.

5.2 New Energy Demand: Irreversible Structural Growth

The contribution of the new energy sector to sulfur demand is shifting from a marginal increase to a structural force. SMM estimates that approximately 0.9 tonnes of sulfur are consumed for every tonne of lithium iron phosphate produced. Global output of LFP energy-storage cells is expected to reach 827 GWh in 2026, corresponding to approximately 1.82 million tonnes of lithium iron phosphate consumption and ultimately approximately 1.64 million tonnes of sulfur consumption by the energy-storage sector. In 2027, these figures are expected to rise to 1,065 GWh, 2.34 million tonnes, and 2.11 million tonnes, respectively.

China's total output of lithium iron phosphate cathode materials reached 2.629 million tonnes during the first half of 2026, up approximately 67% year on year. CITIC Futures expects China's full-year lithium iron phosphate output to increase by 1.4 million tonnes, generating an additional 3.458 million tonnes of pure sulfuric acid demand.

These increases represent irreversible structural substitution. The replacement of conventional fuels by lithium iron phosphate and the replacement of pyrometallurgical nickel processing by hydrometallurgical methods are industrial changes whose direction has already been established within the broader energy transition. They will not reverse because of short-term fluctuations in sulfur prices. The rise of the LFP energy-storage industry and Indonesian intermediate nickel products has introduced a steep sulfur demand curve that is independent of the agricultural cycle.

06. Divergence Between Rigid International Costs and Domestic Pricing

A divergence warranting close attention is developing between accelerating domestic price declines and firm costs in the international market.

In terms of headline quotations, international sulfur prices are indeed softening. QatarEnergy lowered its September 2026 monthly sulfur contract price to USD 880/tonne FOB, down slightly by USD 10/tonne from USD 890/tonne in August. This reflects an attempt by Middle Eastern exporters to ease downstream purchasing pressure through modest price adjustments.

However, softer headline quotations conceal rigid actual landed costs. Marine insurance surcharges have surged because of continuing geopolitical shipping risks in the Strait of Hormuz. Based on Kuwait's August contract price of USD 865/tonne FOB, the addition of high freight costs and insurance premiums brings the theoretical comprehensive CFR landed cost at southern Chinese ports to more than USD 1,070/tonne at the upper end. China's current CFR assessment for imported granular sulfur is USD 1,000-1,050/tonne, while domestic spot prices along the Yangtze River coast are equivalent to approximately RMB 7,200/tonne. On a comprehensive basis, import trade is already approaching break-even and has even become loss-making during certain periods.

The implication of this divergence is clear. If domestic spot prices continue to decline, imports will generate substantive losses, creating a risk that subsequent arrivals will contract. Traders' willingness to purchase proactively has weakened significantly. Most are focused on fulfilling term contracts, while speculative imports have largely stalled. The implicit rigidity of import costs is creating a floor for the domestic market that does not originate from demand. With higher shipping costs raising import landed costs, support from international prices for domestic costs is unlikely to weaken in the short term.

07. Migration of the Long-Term Pricing Anchor: Two Variables That Cannot Be Ignored

7.1 Sulfuric Acid Production from Phosphogypsum: Economics of the Alternative Route

The substitution of sulfur demand through sulfuric acid production from phosphogypsum is the most certain structural variable over the medium and long term.

Phosphogypsum-to-sulfuric-acid projects currently under development are beginning to reach scale. Shengwei Group's 500,000-tonne-per-year sulfuric acid project using comprehensively recycled phosphogypsum is about to enter trial production. The first phase of Xinyangfeng's phosphogypsum-to-sulfuric-acid project is expected to begin production during the second half of next year, when pressure from externally purchased sulfur will be greatly reduced. A Yuntianhua subsidiary is investing RMB 1.578 billion in a facility producing 1.5 million tonnes per year of cement from phosphogypsum alongside 600,000 tonnes per year of sulfuric acid. Once completed, Yichang Brunp Yihua's 2-million-tonne phosphogypsum-to-sulfuric-acid project will consume 2 million tonnes of phosphogypsum and produce 800,000 tonnes of industrial sulfuric acid annually. China Nerin Engineering has won an EPC contract for a project producing sulfuric acid and cement from 2 million tonnes of phosphogypsum annually, which will effectively reduce China's reliance on sulfur imports.

However, the economic threshold for these alternative routes is far below the current sulfur price of RMB 7,200/tonne. Even if sulfur prices fall by another 50%, sulfuric acid production from phosphogypsum will retain a significant economic advantage. This means that short-term declines in sulfur prices will not slow the development of the alternative route. The real constraints on scaling it up are project investment cycles, phosphogypsum processing capacity, and policy conditions.

7.2 Launch of Sulfur Futures: A Shift in the Pricing Model

The Dalian Commodity Exchange plans to list China's first sulfur futures contract in the fourth quarter of 2026. The contract is designed with a dual-track delivery model using solid sulfur as the standard delivery product and liquid sulfur as an alternative. The introduction of futures will reshape the industry across four dimensions: price discovery, risk management, trading models, and market structure. The market will move from bilateral negotiation toward transparent pricing and from passively absorbing volatility toward active hedging.

For China, which relies on imports for more than 50% of its sulfur requirements and imports more than 10 million tonnes annually, the introduction of futures instruments is expected to support the gradual creation of an import pricing system in which China plays the leading role. It may reduce asymmetry in the transmission of geopolitical risks and strengthen China's pricing influence in global sulfur trade.

08. Market Outlook: A Multi-Horizon Assessment

Short Term, from Before the National Day Holiday to Mid-October: Range-Bound Trading, with a Sustained Move in Either Direction Unlikely

Upside pressure comes from continued weakness in phosphate fertilizer demand and lower-than-expected stockpiling before the National Day holiday. Downside support comes from two sources. First, although port inventories have recovered slightly, their absolute level remains low and the structural shortage of tradable cargoes has not been fundamentally resolved. Second, import costs are close to break-even or even inverted. Expectations of lower subsequent arrivals will therefore create a passive floor for spot prices. Geopolitical developments will continue to dominate short-term pricing, making broad fluctuations at high levels the most likely scenario.

Medium Term, from the Fourth Quarter of 2026 to the First Half of 2027: The Shortfall Thesis Will Dominate and the Market's Price Center Will Gradually Stabilize

The global sulfur supply-demand shortfall of more than 5 million tonnes in 2026 will not be altered by short-term price fluctuations. The principal variable is the direction of phosphate fertilizer export policy. If the export window reopens, suppressed phosphate fertilizer operating rates will recover and sulfur demand will regain elasticity. If export policies remain restrictive, domestic sulfur prices will repeatedly fluctuate between support from import costs and weak domestic demand. In either case, structural supply contraction and rigid growth in new energy demand mean that the medium-term sulfur price floor will remain far above historical norms.

Long Term, from the Second Half of 2027 Onward: The Demand Curve Will Be Reshaped, but the Shortage Will Persist

The large-scale commissioning of phosphogypsum-to-sulfuric-acid facilities will structurally reduce sulfur demand over the medium and long term. However, the pace of this substitution will be constrained by project investment cycles rather than sulfur prices. At the same time, the global energy transition's suppression of high-sulfur fuel demand will continue to tighten the long-term ceiling on sulfur supply. Structural changes on both the supply and demand sides mean that the sulfur market will gradually shift from the seller's market of the past two years, dominated by geopolitical supply shocks, toward a rebalancing market driven by alternative technologies and changes in the demand structure. However, the endpoint of this rebalancing will not be oversupply, but a new state of tight balance.

09. Risk Warning

Upside Risks: A greater-than-expected escalation of geopolitical tensions in the Middle East causing further damage to regional petrochemical facilities; an easing of phosphate fertilizer export policies releasing suppressed demand on a concentrated basis; and further tightening of Russia's export ban, reducing globally tradable spot supply.

Downside Risks: A further easing of geopolitical tensions in the Middle East, the restoration of navigation through the straits, and lower shipping costs; continued tightening of phosphate fertilizer export policies and a prolonged absence of domestic demand elasticity; faster-than-expected commissioning of phosphogypsum-to-sulfuric-acid projects, bringing forward the substitution effect; and a global recession causing a significant slowdown in new energy capacity additions.

Urea Weekly: Export Benefits Absorbed as Ample Supply and Weak Demand Dominate the Market (September 18, 2026)

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