The ongoing conflict in Iran has not only destabilized aluminum markets but is now sending shockwaves through the copper and nickel sectors, primarily due to a significant sulfur supply squeeze. This disruption poses serious risks to production costs and output levels across various regions, raising concerns among producers who are already grappling with tight inventories.
At the heart of this crisis is sulfur, a by-product of oil and gas refining in the Gulf region. The closure of the Strait of Hormuz on February 28 has severely restricted sulfur flows, impacting approximately 25% of global production, as reported by the US Geological Survey. This situation creates a rapidly evolving challenge for a market that intersects energy, agriculture, and metals processing.
Importance of Sulfur in Metal Production
Sulfur is crucial for producing sulfuric acid, an essential reagent in several industrial processes. In copper production, it plays a vital role in solvent extraction and electrowinning (SX-EW), which is widely used for processing oxide ores. Similarly, in nickel production, sulfur is necessary for high-pressure acid leach (HPAL) facilities that generate intermediate products like mixed hydroxide precipitate (MHP). However, with two-thirds of global sulfur demand driven by fertilizer production, agricultural priorities will likely dictate allocation during shortages, leading to export restrictions from major suppliers.
Global Supply Constraints Due to Export Bans
China, the largest producer of sulfuric acid, plans to impose an export ban next month. Turkey has already enacted similar restrictions, while India is contemplating similar measures. These developments contribute to an accelerating global sulfur shortage, with prices reaching unprecedented levels. This scenario complicates matters for metals producers who were already facing rising input costs before these disruptions.
Copper’s Vulnerability to Supply Disruptions
Approximately 20% of global refined copper output relies on SX-EW technology, making this sector particularly sensitive to sulfuric acid availability. The Democratic Republic of Congo is notably at risk as SX-EW accounts for about half of its copper output, with much of its sulfur sourced from the Gulf region. Producers are responding by rationing consumption and slowing operations to manage chemical inventories effectively.
Chile, the leading copper producer globally, also faces challenges as it produces around 1.125 million tonnes of SX-EW copper annually and imports about 20% of its sulfuric acid from China. While Chile has some domestic production capacity from smelting by-products that could mitigate immediate impacts, the long-term outlook remains uncertain.
Domestic Market Distortions in China
The export restrictions from China could lead to internal market distortions as local copper smelters have increasingly relied on sulfuric acid sales for revenue amidst declining treatment charges. This shift may benefit fertilizer producers by lowering domestic sulfur prices but could adversely affect copper smelter margins, potentially resulting in temporary output cuts or maintenance shutdowns if conditions persist.
Nickel Producers Face Immediate Challenges
The impact on nickel production is expected to be felt more swiftly than in copper. Indonesia imports around 75% of its sulfur needs from the Middle East and China. Nickel production via HPAL is highly acid-intensive; estimates suggest that producing one tonne of MHP requires 25–30 tonnes of sulfuric acid. As inventories tighten, some Indonesian HPAL operators have begun scaling back their operations.
Inflationary Pressures on Production Costs
The most pressing concern currently is not volume loss but escalating costs. The surge in sulfur prices has reportedly added approximately $4,000 per tonne to Indonesian HPAL nickel production costs. This increase helps explain recent price rallies in nickel and copper markets, with London Metal Exchange prices climbing above $13,000 per tonne for copper.
Agricultural Demand Shapes Sulfur Pricing
Despite fluctuations in metal markets, sulfur pricing remains fundamentally tied to agricultural needs. Given that fertilizer production constitutes the majority of global demand for sulfur, governments are likely to prioritize food security over industrial applications during shortages. Consequently, copper and nickel producers may find themselves relegated to secondary status in supply allocation.
Future Outlook Amid Geopolitical Tensions
Attention now turns to whether a newly announced 10-day ceasefire in Iran can stabilize conditions enough to reopen the Strait of Hormuz and restore normal sulfur flows. Even if geopolitical tensions ease, competition for sulfur resources among metals producers, fertilizer manufacturers, and energy refiners will persist. In this ongoing contest for limited supplies, agriculture is expected to remain the dominant force shaping market dynamics.
