Huatai Securities: Decline in Oil and Gas Processing Volume Leads to Sulfur Supply Gap, Impacting Chemicals and Metals from Multiple Angles

Huatai Securities Research Report states that approximately 60% of global sulfur comes from sulfur, 30% from by-products of metal smelting, and 10% from sulfur iron ore acid production. The main sources of global sulfur production are crude oil refining and natural gas processing. According to Kepler, by 2025, nearly half of the sulfur exported through the Strait of Hormuz will be from this route. Combined with limited crude oil supply leading to decreased load expectations at East Asian refineries, and the relatively low sulfur content in North American shale oil and gas, the supply gap in sulfur will become more apparent after reductions in Middle Eastern sulfur supply. Huatai Securities believes that the mid-term supply and demand imbalance of sulfur may be difficult to reverse. According to S&P Global, about 58% of global sulfuric acid is used for phosphate fertilizers, with the rest used in processing metals such as nickel, copper, uranium, as well as in manufacturing titanium dioxide, nylon, dyes, and lithium-ion battery cathodes. As sulfur supply tightens and prices remain high, chemical projects with differentiated production routes such as phosphogypsum acid production, ferrous oxalate for iron phosphate, and chlorination titanium dioxide are expected to benefit.

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Huatai | Middle Eastern Natural Gas Supply Disruption Impacts Chemical Market

Key Points

Since the conflict between the US, Israel, and Iran at the end of February 2026, the control of the Strait of Hormuz has disrupted transportation of key fertilizers and chemical raw materials such as urea, LNG, methanol, and sulfur. Additionally, several natural gas plants in Iran and around the Persian Gulf have reduced or halted production due to the conflict, causing rapid increases in global prices for related products since March. The Persian Gulf region, a major source of urea and LNG supply, is critical, especially as the conflict occurs near the Northern Hemisphere planting season. We believe that international urea supply shortages may push up global grain prices in the second half of 2026. China, as a major fertilizer consumer, has sufficient domestic urea supply, so the impact of overseas price increases may be limited. The gap in methanol supply has driven up prices for methanol, acetic acid, and DMF in Asia, and has also led to rising costs for biodiesel in Southeast Asia. The mid-term sulfur shortage is unlikely to be reversed, putting pressure on downstream products such as titanium dioxide, lithium iron phosphate, nylon, and phosphate fertilizers. We believe that Chinese alcohol amine coal chemical companies with strategic value and those producing chemical products through differentiated routes that consume less sulfur are likely to benefit. US and Russian gas-based chemical companies may also gain.

Disrupted Urea Transport and Reduced Natural Gas Production Will Impact Global Grain Prices in H2 2026

Based on 2025 global urea trade estimates, the US, Israel, and Iran conflict has disrupted about one-third of urea transportation through the Strait of Hormuz. The decline in natural gas production around the Persian Gulf also significantly impacts urea production in the Middle East, South Asia, and Southeast Asia. Countries like India, Pakistan, and Thailand, which rely heavily on Middle Eastern natural gas, may see reductions in urea output. According to Bloomberg, on March 18, CFR urea prices in Southeast Asia had already risen 45% since late February. As the planting season approaches in Europe and America, followed by the peak planting season in South and Southeast Asia (June-October), rising costs and fertilizer shortages could lead to insufficient crop yields and higher global grain prices.

Domestic Urea Supply Continues to Be Secured in China, Highlighting Fertilizer Strategic Importance

In China, the continuation of the 2026 domestic urea export legal inspection during the spring planting season ensures sufficient fertilizer supply, with limited impact from overseas price increases. As of March 18, domestic urea prices averaged 1,902 RMB/ton, up 2% from late February, with a relatively small overall increase. China mainly uses coal as raw material for urea production, with over 80% capacity from coal-based processes in 2025, ensuring ample capacity without reliance on imports. Amid global supply shocks caused by the US-Israel-Iran conflict, fertilizers like urea are fundamental to food security and thus have increased strategic importance. After the spring fertilization period, domestic producers are expected to have an export window. Currently, the domestic and international urea price difference exceeds 2,500 RMB/ton. We recommend leading Chinese urea companies.

Middle Eastern Methanol Shortage Impacts East Asia, Driving Up Downstream Product Prices

According to Kepler, Iran, as the second-largest global methanol producer and the largest exporter, has experienced reduced methanol output and transportation disruptions through the Strait of Hormuz due to the conflict. This may cause a supply gap in East Asia. According to the General Administration of Customs, China’s methanol import dependency in 2025 was 13%, with about 70% coming from Middle Eastern countries like Iran and Saudi Arabia. The decline in imported supplies mainly affects East China’s methanol supply, leading to higher prices for downstream products such as acetic acid and DMF. Meanwhile, tight methanol supply in Southeast Asia has increased costs for biodiesel production. Since China’s methanol operating rate was only 82% in February, with sufficient capacity and relatively stable costs for coal-based processes in western regions, we believe China’s methanol supply resilience remains strong. We recommend coastal Chinese methanol producers.

Decline in Oil and Gas Processing Causes Sulfur Supply Shortage, Impacting Chemicals and Metals

Approximately 60% of global sulfuric acid is derived from sulfur, 30% from by-products of metal smelting, and 10% from sulfur iron ore acid production. The main sources of global sulfur are crude oil refining and natural gas processing. According to Kepler, nearly half of the sulfur exported through the Strait of Hormuz in 2025 will be from this route. Combined with limited crude oil supply and the expectation of decreased capacity at East Asian refineries, along with the low sulfur content in North American shale oil and gas, the global sulfur supply gap will become more pronounced after reductions in Middle Eastern sulfur. S&P Global reports that about 58% of global sulfuric acid is used for phosphate fertilizers, with the rest in processing metals such as nickel, copper, uranium, and in manufacturing titanium dioxide, nylon, dyes, and lithium-ion battery cathodes. As sulfur supply tightens and prices stay high, chemical projects with differentiated production routes—such as phosphogypsum acid, ferrous oxalate for iron phosphate, and chlorination titanium dioxide—are expected to benefit.

Risk Warning: Uncertainty in supply impact due to conflicts; significant demand decline risks.

(Source: People’s Financial News)