The Outlook for Sulphur and Sulphuric AcidSulphuric AcidPrepared by Joanne Peacock, British Sulphur p y , pConsultants, for Creon

LONDON | RALEIGH | WASHINGTON | MINNEAPOLIS| BEIJING

31 Mount Pleasant, London WC1X 0AD UK Tel +44 20 7903 2132 Fax +44 20 7833 4973

www.crugroup.com

This presentation will review :

PART 1 - SULPHUR

• Recent Developments

• Supply OutlookSupply Outlook

• Conclusions

PART 2 – SULPHURIC ACID

• Recent Developmentsp

• Supply Outlook

K C l i• Key Conclusions

Part 1: SULPHUR Part 1: SULPHUR

Recent DevelopmentsRecent Developments

Late 2006 to mid-2008.

Supply problems out of Vancouver and Russia disrupted Q1 2007 exports …disrupted Q1 2007 exports …

(thousand tonnes)Canada Russia

3000

3500 0.9 million tonnes below the average of the other quarters

2000

2500

1500

2000

500

1000

02006 I II III IV 2007 I II III IV 2008 I II

… as phosphate fertilizer prices soared.

US $ per tonne Phosacid fob N Africa DAP fob Tampa

18002000US $ per tonne Phosacid fob N. Africa DAP fob Tampa

120014001600

High grain prices, biofuels boost demand

600800

10001200

200400600

01992 1997 2002 2007

Chinese demand continued to grow …

2007 imports 9.65 Mt vs 8.81 Mt in 2006

(thousand tonnes)North America Far East Middle East/FSU/Other

2500

3000North America Far East Middle East/FSU/Other

Q3 2007 2.64 million tonnes

2000

2500

1500

500

1000

02006 I II III IV 2007 I II III IV 2008 I II

… and sulphur prices rose - quite slowly at firstbut then with increasing speed.g p

800850900($/tonne fob Ruwais)

600650700750800

Adnoc monthly contract price rises by $768/t in 20 months

400450500550600

200250300350400

050

100150200

0

2005

Jan Mar

May Ju

l

Sep

Nov

2006

Jan Mar

May Ju

l

Sep

Nov

2007

Jan Mar

May Ju

l

Sep

Nov

2008

Jan Mar

May Ju

l

Market fundamentals supported price increases.4 Global supply surplus 3.4 Mt.

P i t d l

2

3Prices at record lows.

1

2

n to

nnes

)

-1

0

(mill

ion

Global supply deficit 1 2 Mt

3

-2

Global supply deficit 1.2 Mt.

Prices soaring.

-3

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Recent DevelopmentsRecent Developments

Mid-2008 to the present.

What went wrong?

China

• Fertilizer special export tax introduced Apr Sep 2008 later extended to• Fertilizer special export tax introduced Apr-Sep 2008, later extended to Dec 2008.

• Olympics depress sulphur demand furtherOlympics depress sulphur demand further.

• China is awash with sulphur, sulphuric acid and finished phosphate fertilizers.fertilizers.

The credit crunch

• Commodity prices came under huge pressure as the credit• Commodity prices came under huge pressure as the credit crunch became a global financial crisis.

• The price of crude oil metals grains etc all fell sharply OceanThe price of crude oil, metals, grains etc all fell sharply. Ocean freights dropped massively as world trade slowed.

• Sulphur could not escape the storm.Sulphur could not escape the storm.

Phosphates

• Demand destruction now in full force• Demand destruction now in full force.

• Production cutbacks have been announced by numerous fertilizer producersfertilizer producers

• Sulphur prices have collapsed. Disposal is now the focus.

Adnoc Monthly Contract Price

800850900($/tonne fob Ruwais)

600650700750800

$

400450500550600 Price falls $620/t

in 3 months

200250300350400

050

100150200

0

2006

Sep Nov

2007

Jan Mar

May Ju

l

Sep

Nov

2008

Jan Mar

May Ju

l

Sep

Market OutlookMarket Outlook

Supply

Brimstone production grows by 35.6 Mt.

North America Middle EastFSU East AsiaRoW

70

80

90RoW

50

60

70

tonn

es)• Strongest growth is in Middle

East, N America, E Asia and FSU.

All th i f i l t

30

40

50

(milli

on• All growth is from involuntary production.

0

10

20

0

2007

2009

2011

2013

2015

2017

Middle East: + 14.3 million tonnes

UAE Saudi ArabiaQatar IranKuwait Others

20

25Kuwait Others

15

20

tonn

es)• Potential is very high: Shah gas-

1 bscfd gas @ 33% H2S = 4 Mt/y S.

B t t ti l f j t d l i10(m

illion• But potential for project delays is

also high.

0

5

0

2007

2009

2011

2013

2015

2017

North America: +8.1 million tonnes

Canada USA

20

25

• Canadian production from gas declines All growth from oil

15

20

n to

nnes

declines. All growth from oil sands.

• Sulphur recovery capacity at

10mill

io

Su p u eco e y capac ty atUS oil refineries increases by ~ 2.5 Mt/y by 2013.

0

5

0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

East Asia: +6.1 million tonnes

8

Oil etc Gas

China produces >7 Mt/y

6

7

es

• Almost all regional growth from China

China produces >7 Mt/y

4

5

llion

tonn

from China.

• Sour gas in Sichuan yields 4.5 Mt/y S by 2017. Output from oil

2

3

milt/y S by 0 Output o o

refineries more than doubles.

0

1

0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

FSU: +2.9 million tonnes

Russia Kazakhstan Others

10

12• Tengiz expansion complete Sep 2008.

8

n to

nnes

)

p

• Kashagan on stream Q4 2012.Sulphur capped at 3,800 t/d.

4

6

(milli

onStorage of 4 Mt sulphur in covered block approved.

0

2• Minor growth in Russia (Orenburg). New sour gas plants in Turkmenistan and U b ki t 0

2007

2009

2011

2013

2015

2017

Uzbekistan.

Conclusions

• The outlook for sulphur balance remains difficult to predict;

•The global economic crisis will affect both consumption and production;The global economic crisis will affect both consumption and production;

• Nevertheless, it would still appear that we are heading for a long period of chronically weak market conditions and large supply surpluses.of chronically weak market conditions and large supply surpluses.

Part 2: SULPHURIC ACID Part 2: SULPHURIC ACID

Recent DevelopmentsRecent Developments

Late 2006 to mid-2008.

Global demand for fertilisers grew significantly from late 2007 in response to growth in China and p g

India, fuelling rapid price rises US $ per tonne Phosacid fob N. Africa DAP fob Tampa

18002000

p

Tonnes H2SO4 per tonne:Ph id 3 0

120014001600 Phosacid = 3.0

DAP = 1.5 Q1-3 average 2008

600800

1000

200400600

01992 1997 2002 2007

To meet growing demand within the emerging economies, the copper price soared

¢/lb000t Cu

, pp p

LME cash price and supply/demand balance quarterly 2002-2008LME cash price and supply/demand balance, quarterly, 2002 2008 (Q3)

Acid Imports – Chile, 2002-2008

(thousand tonnes) Asia Americas Europe

1500

1750

( ) Asia Americas Europe

Chile imports 1.61 million t of acid in Jan-Aug 2008

1250

1500

750

1000

250

500

0

250

2002 2003 2004 2005 2006 2007 2008

Sulphuric Acid Trade 2008

1.3

0 3

0.5

0.3

2008 TRADE FLOWS

0.2 2.00.2 0.4

2008 TRADE FLOWS

Total Trade to Sept <11 million tonnes;

Extra-regional Trade 1.7 0.4

ImportsB D t IFA BSC GTIS

Extra regional Trade to Sept > 3.5 million

tonnesExports

Base Data: IFA, BSC, GTIS

Recent DevelopmentsRecent Developments

Mid-2008 to the present.

What went wrong?

Demand Destruction: Fertilizer price increases have Demand Destruction: Fertilizer price increases have pushed farmer costs past break-even

*at current prices/application rates/yields

*does not include capital recovery (approx $0 50)Source: USDA, British Sulphur

does not include capital recovery (approx. $0.50)

Copper prices succumb to financial meltdown…LME cash price and supply/demand balance, quarterly, 2002-2010

Forecast

¢/lb000t Cu

Brimstone Imports – China, 2005-August 2008

20082007(thousand tonnes)

200

400

1000

12002008 VS 2007

( )

0

200

800

1000

-400

-200

400

600

-800

-600

0

200

8000Jan Feb Mar Apr May Jun Jul Aug

Market OutlookMarket Outlook

Supply

Changes to voluntary sulphuric acid production it / t d t t k l icapacity are/were expected to take place in:

• US:– Freeport McMoran (Safford) – 420ktpa – 2009/2010 - NOW UNDER REVIEW

– Martin Midstream (Beaumont) - 150ktpa – 2009/2010

S th St t Ch i l (Wil i t ) 150kt 2009/2010– Southern States Chemicals (Wilmington) – 150ktpa – 2009/2010

– Ongoing debottlecking and capacity additions within fertiliser sector

• Europe:• Europe:– Prayon (350ktpa) – 2009

• Cuba:• Cuba:– Moa Bay Nickel (400ktpa) – 2010 - NOW UNDER REVIEW

• Namibia:Namibia:– Rossing Uranium –to be confirmed – 250ktpa – 2011 - NOW UNDER REVIEW

• Chile - UNDER REVIEW

Changes to involuntary sulphuric acid production capacity are expected to take place in:capacity are expected to take place in:

• Central America:– Mexico – GM currently running at 50% capacity

• South America:– Chile – Altonorte smelter +400ktpa – 2009/2010

– Peru - all smelters +1million tpa by 2012

• Europe:– Possible expansions in Germany/Bulgaria by 2011/2012

• Asia (excluding China):– India - + 300-500ktpa by 2010-2012d a 300 500 tpa by 0 0 0

Conclusions:

• Demand has collapsed around the world;

• Producers are cutting back production in order to manage stocks;

• Prices have collapsed and distress sales are being made;

• Outlook remains difficult to assess – impact on both supply and demand side;

• However, there will continue to be growing availability from Europe and Asia (involuntary production).

Chi i h i fl f t l b l b l• China remains a huge influence on future global balance.

• Therefore further market rationalisation may take place.

Sulphur/Sulphuric AcidTen Year Forecast & Market Analysis Service

Joanne Peacock+ 44 20 7903 2121 / +44 7884 361717joanne.peacock@crugroup.com

LONDON | RALEIGH | WASHINGTON | MINNEAPOLIS| BEIJING

31 Mount Pleasant, London WC1X 0AD UK Tel +44 20 7903 2132 Fax +44 20 7833 4973

www.crugroup.com