Strait of Hormuz: How Sulphur is Impacting the Copperbelt

Roxana: Hi, everyone. And welcome to a joint episode from Argus Fertilizers and Argus Metals. The conflict in the Middle East has sent shockwaves through global commodity markets. And with no sign of easing, continued attacks and shipping disruptions are now spilling into the sulfur trade. The Strait of Hormuz, a critical choke point that normally handles nearly half of global sulfur exports, has become a pressure point for the African Copperbelt, which relies on the Middle East for over 90% of its sulfur imports. Supply disruptions and refinery shutdowns have pushed sulfur prices significantly higher since the start of the conflict. So, this raises real questions about how exposed copper and cobalt producers in the DRC and Zambia truly are.

Today, we're digging into that intersection, how sulfur flows are being disrupted, what this means for copper and cobalt output in the African Copperbelt, and how far these pressures can ripple into global supply and pricing. To answer these questions, I'm joined by a group of experts that cover these markets for Argus Media on a daily basis. Fenella Rhodes, our sulfur and sulfuric acid reporter. Raghav Jain, our copper senior reporter. And Chris Welch, our battery materials reporter. I'm Roxana Lazar. I cover the noble alloys and zinc at Argus Media.

So, to start us off, Fenella, it's obviously been a chaotic few weeks for you guys on the fertilizers desk. Could you please explain how the conflict in the Middle East has actually disrupted sulfur shipments in the Copperbelt? What does this look like on the ground? Are vessels being delayed, rerouted, or are they simply not loading?

Fenella: Hi, Roxana. Yes, a lot to unpack. So, in terms of sulfur, as you said, around half the world's exports come from the Middle East. And notably, volumes that go into the Copperbelt almost exclusively have shipments from the Middle East. So, suddenly, you have around 90% to 95% of all sulfur imports into Southern Africa completely blocked. And before the Middle East conflict, the port of Dar es Salaam in Tanzania was looking pretty healthy in terms of volumes. Warehouses were around 60% to 70% capacity. And we'd start to see prices nudge down as some traders made shipments to Southern Africa, knowing that they could sell on an FCA basis and get better returns than the other parts of the global market.

However, the moment the Strait of Hormuz effectively closed, we've seen cargoes completely come to a halt for Southern Africa. My contacts have confirmed several vessels stuck in the Strait loaded with sulfur currently, including one that was due mid-March, and that still remains in the Gulf. It seems, where able, we are still seeing sulfur cargoes loaded, but they aren't making it out of the Strait. So, the exception to this is, on the other side of the Strait, we've seen a sulfur cargo load in Oman, and that's made its way to Dar es Salaam since the conflict. But at present, this seems to be the only Middle East volumes able to come through.

However, Duqm only loads around 30 to 35 KT vessels, and that's approximately once every two months, which is a very small share of overall Middle East exports. But other options do include Black Sea, U.S. Gulf, or Canadian volumes, which are also high in demand. So, those needing sulfur in the Copperbelt are essentially up against other regions dependent, such as Asia for the nickel industry and other fertilizer producers globally. Metal industry buyers are in a better position in terms of affordability to attract tons compared to the more fertilizer-led markets. But this is why we're seeing higher prices paid for product to metal-led markets like the Copperbelt and Indonesia.

Roxana: Great. Thank you for the answer. And what are you hearing about the sulfur and sulfuric acid market in the Copperbelt right now? Are traders already struggling to source material?

Fenella: Yes. So, with sulfur currently, we're seeing prices in the key hub of Dar es Salaam in Tanzania soar. This week, we're hearing offers above $1,000 a tonne FCA, so i.e. loaded onto a truck, with some offers as high as $1,200 a tonne FCA for small parcels. And prior to the conflict, so around the 26th of February, prices were hugging $600 a tonne FCA. So, you can see how much that's jumped up. So, given the current sulfur shortages, surge in demand, and price in the region, we're actually seeing mining companies are looking at least in the short term to increase sulfuric acid volumes just to keep operational. So, this in turn is creating a tightening sulfuric acid market. We've also learned from the 27th of March, Zambia has enforced a sulfuric acid export permit system to protect local demand and business.

Roxana: And are there any other factors that come into play in the region that are impacting sulfur and sulfuric acid?

Fenella: Yes. So, the Zambia permit system is said by those in the market to be linked to trying to keep trucks local to Zambia given the ongoing fuel constraints. So, in Zambia currently, there are early signs of diesel shortages, as the region, which is also one of the Middle East's closest diesel market, begins to feel these physical effects from the closure of the Strait of Hormuz. So, a major distributor in Southern Africa priced diesel at $2.41 per liter, almost double the February levels at $1.21 per liter. So, this in turn has seen freight trucking costs jump up. There's a lot of pressure from many sides.

And then in terms of trucking, there was a hope that the extension of the DRC cobalt export deadlines would actually provide some relief to the sulfur movement in the Copperbelt. But inspection bottlenecks and these diesel supply constraints from the Hormuz closure continue to restrict the critical trucking backhauling process that links cobalt exports to sulfur imports.

Roxana: Since sulfur is such a critical input for producing the sulfuric acid used in copper and cobalt processing, especially in the African Copperbelt, I want to bring in our copper and cobalt reporters here because disruptions upstream inevitably ripple downstream. So, let's start with copper. Raghav, how big is the exposure here? How much of the Copperbelt's copper output really depends on these sulfur deliveries? And when those shipments start to falter, how fast does that translate into actual issues for the miners on the ground?

Raghav: Yeah. Thanks, Roxana. Just to sort of set the scene a little bit, from the copper side, the key point is that sulfur matters most where copper is produced through acid leaching, especially solvent extraction electrowinning or SX-EW as it's known. So, when sulfur shipments are disrupted, as we've seen in the Middle East, the immediate risk is not to the whole copper market globally and equally as well. It is concentrated in specific regions and production routes, above all, the African Copperbelt, given its proximity to the Middle East at the moment.

Africa's exposure as a result is significant, but it is also nuanced. The DRC is the most exposed part of the copper market because a large share of its copper output depends on sulfuric acid for leaching. Estimates suggest roughly 3 million tonnes per year of copper production in the DRC could be vulnerable to prolonged sulfur disruption out of global mine supply of about 23 million tonnes. So, the difference is stark. This makes this a serious regional issue, but not automatically a global copper supply shock on day one, if you know what I mean.

The second nuance is that not all Copperbelt production is equally vulnerable. Operations with their own smelting chains or those able to source domestically are structurally better insulated. This is why this is really a DRC leaching story first, and only then a broader African copper story. The copper market is split between concentrate-based production, which goes through smelters, and leaching-based production, which depends on sulfuric acid, and that distinction matters. Smelters actually produce sulfuric acid as a byproduct. So, they are structurally insulated in some cases. In fact, higher sulfuric acid prices can even support smelter margins. So, the sulfur disruption is mostly a DRC and leaching-specific issue, not a global copper supply shock yet.

In terms of dependency on Middle East and sulfur, the dependence is very high. Around 90% of sulfur used in Zambia and the DRC comes from the Middle East. That's largely because it's the cheapest and most established supply source, and logistics routes are well-equipped and well-developed via Gulf exports. And that's why the Strait of Hormuz is so important here, and the closure of it. There aren't many viable alternatives at scale in the short term. So, when flows through the Strait of Hormuz are disrupted, the region feels it almost immediately, through higher prices, tighter availability, and longer delivery times.

I mean, the speed at which it can turn into a real problem is somewhere in between of not slow and not immediately. Most producers and traders say miners typically have some weeks of coverage, either in sulfur, acid, or both. Copper prices have been tracking high. So, when sulfur and sulfuric acid prices have risen sharply, many have been able to secure short-term, near-term supply at high prices, which I suppose feeds into high sulfur prices at the moment.

The problem is that if shipments through the Gulf stay disrupted beyond a few weeks or the current window, the market starts to tighten very quickly, because there is no easy replacement source at the same scale. Refineries and leach operators likely have stockpiles to get through a few weeks, but not much longer. After that, buyers start scrambling for alternatives. In practical terms, the first stage is usually not a mine shutting overnight. The first stage is procurement stress. So, delayed cargos, higher replacement costs, tighter acid availability, and then operational adjustment. If disruption persists, operators may process higher grade ore first to maximize copper output per tonne of acid consumed, for example. If it gets worse than that, then you start talking about idling leach circuits, force majeure risk, and actual production cuts, and we haven't yet seen that.

Roxana: Great. Thank you. That was very detailed and very, very helpful. I'm just wondering, what are producers doing right now then? How are they responding so far? Are we seeing stockpiling or selective slowdowns, or are most operators simply waiting to see how long the disruption lasts? What is the general reaction?

Raghav: Well, the market's been mostly focused on weaker economic growth and other inflationary pressures like fuel and freight rates and all the rest of it. In terms of sulfur, for now, most copper producers, I'd say, are still in wait and manage mode, not panic mode. The main responses we're hearing about are using inventories where possible, trying to secure alternative tonnes, and watching freight and acid markets very closely. There is not yet evidence of widespread copper output cuts directly attributable to sulfur shortages, but there is definitely a growing sense that if Gulf disruption drags on, the cushion starts disappearing.

The important thing is that copper producers are not just dealing with a sulfur issue in isolation. They are dealing with stacked cost inflation. Diesel, logistics, insurance, and reagents are all moving higher together. Some legacy producers are starting to factor in higher production costs of up to 5% or so on the Middle East conflicts, on the compounding stacking effects of all of these pressures. So, there are early quantified signs so far that miners are already thinking in cost inflation terms.

An important point is that the impact is not immediate, but it's not slow either. So, most operators will hold a few weeks of stock, maybe one or two months. So, if the disruption is short-lived, if we get to a conclusion soon, they can manage. But if this extends beyond that into late second quarter or beyond, then you start to see real pressure. And that's the key trigger. When inventories run down, this shifts from a cost issue to a supply issue.

Roxana: And what would this mean for copper prices?

Raghav: Yeah. Well, this is where the copper story gets more complicated. In the short term, the Middle East conflict has been read by the copper market mainly as a macro demand shock, not a supply shock. Copper prices have fallen sharply in March as investors focused on higher oil prices, inflationary risks that we've talked about, and just slower economic growth. Even as Chinese fabricators stepped in to buy the dip in March, copper still dropped about 10% to 12% this month at one stage before recovering some of the lost ground and going back above the $12,000 per tonne mark, for example.

So, the current market is split into two layers. The top-down layer is bearish, higher energy prices, weaker risk appetite, concerns about growth. But the bottom-up layer is more supportive. Chinese buying has improved in the price drop, and there is a real risk that prolonged sulfur disruption could begin to affect African cathode supply. So, that means, in my view, copper is not yet trading a major supply shock as far as sulfur is concerned. But it could if the disruption lasts long enough. Right now, this is more a cost and logistics story than a full supply story.

So, we see copper producers stockpiling at the moment where possible, you know, following more conservative procurement strategies, a general wait and see approach. There's no widespread evidence of any production cuts, as I've mentioned. So, no meaningful reduction in copper supply expected. And general weak demand side fundamentals mean that prices are actually falling instead of rising.

Roxana: That was a very useful breakdown. Copper tends to dominate the conversation. But I'd like to bring in our cobalt reporter here, since cobalt is deeply tied into the same acid-intensive circuits. Chris, is cobalt facing the same level of risk as copper when it comes to sulfur shortages, or is the exposure different because of how cobalt circuits operate?

Chris: So, yeah. Thanks, Roxana. Yeah. There's a bunch here to say on cobalt. And I agree with everything that Raghav has said on copper. Essentially, the cobalt outlook is quite similar to copper because cobalt, of course, is a byproduct. It sits in those same circuits, as you mentioned. I think it's worth saying that these days, that is actually quite unusual. Copper oxide is only around 15% of all copper deposits globally. Most of it has been mined historically. But in the DRC, it's roughly...depending on the figures that you believe, it's roughly half that rely on this sulfuric acid leaching that Raghav was mentioning. So, it's particularly exposed. If sulfur shipments through the Gulf do start to falter, cobalt, in theory, feels the pinch in the same way. So, that's the first thing, in theory.

With cobalt, you also have to factor in Indonesia, of course. It's the second biggest producer. It accounts for most of the rest of mined cobalt as a byproduct of nickel. Around three quarters of Indonesia's sulfur imports from the Middle East last year, for example...well, were from the Middle East last year. Now, we've heard that the big eight power nickel producers are warning that they'll be running out of sulfuric acid by May without fresh deliveries. So, what affects nickel is going to affect cobalt as well as part of the ore body.

I think, more importantly, for cobalt, it's a slightly different story because the biggest bottleneck right now isn't sulfuric acid shortages in the DRC or Indonesia. The biggest problem is disruption around exports, as people in the market will be familiar with. To summarize just very quickly for those who want, last year, there was an eight-month export ban. We've now had quotas for around six months at around 7,500 tonnes per month in theory. But still, even today, we're sort of nowhere near the allowed export volumes. In January and February, data shows that there's been roughly 3,000 to 4,000 tonnes of cobalt contained exported. So, half, basically, of the quota allowance.

In that time as well, part of what's been slowing the ramp up is that there's been disputes over assay content. That now appears to be resolved, but the inspections are still taking time. There's been trucks diverted for copper, which is a bigger money spinner, and prices shooting up as high as $13,000 a tonne a couple months ago. There's been shipping disruptions now and higher freight rates. So, you will expect that. That might be one aspect where you expect to see cobalt deliveries making their way to China, taking even longer. But the market is already in trouble in that sense because of what we've seen with export quota allowances taking time to ramp up.

So, yeah, there really are a bunch of bottlenecks for cobalt at the moment, just as there are for copper and nickel. But I guess, top of that list is delays to the export quota, which we've seen. So, perhaps not shortages to sulfuric acid.

Roxana: And do you think that this is just a short-term blip or something that could force a longer-term rethink for cobalt producers?

Chris: Yeah. The longer-term outlook is harder to call. This is a broader point, I think, but I certainly wouldn't imagine that markets are going to return to normal if and when the Strait of Hormuz does reopen. We've heard that the damage at the LNG facility in Qatar could take five years to rebuild. It may force supply chains to reroute. And so, the effects will be permanent and so on and so on. We'll certainly be feeling the impacts for some time in some way. But I think the counter that is often made to suggesting that buyers will just reroute cobalt out of their supply chains, especially battery buyers, is apart from that just being quite difficult and time-consuming in itself, that there is just so much of metal manufacturing that relies on sulfur that invariably what you reroute it towards is also affected by this disruption.

Sulfur is used to make sulfuric acid, which is then used to make things like phosphoric acid, which of course is an input for the other main battery chemistry, lithium iron phosphate or LFP. There's often this idea that if cobalt tightens, you simply switch over to LFP, but it's more tricky than that. And the reality is that LFP producers are also facing tightening conditions because they're part of the same sulfur chain, just further downstream.

On the demand side as well, I think my take on it is that the demand is somewhat robust. Obviously, aerospace these days, but also from the battery supply chain. A growing share of demand now is driven by storage as opposed to electric vehicles. Storage especially coming from China, which are driven by the state. And I think that demand is slightly less fickle than the consumer demand that we see for electric cars, which can be at the whims of subsidies and so on. So, I think that demand is strong, and we might not see cobalt substituted out in batteries at least, as some might have predicted.

So, yeah. Taken together, sulfur shortages are critical, perhaps not as critical as the export ban that we're seeing. But despite all of that, I still think that demand in the median term will be robust enough to absorb these, even if it does mean some higher prices, whatever those might be.

Roxana: Okay. And before we wrap up, Chris, you've already mostly answered the following question, but I'd like to open this up to Raghav and Fenella. What kind of reaction should your respective markets expect if these disruptions persist? And should downstream buyers be worried?

Raghav: Thanks, Roxanna. I mean, I would say downstream buyers should be watchful rather than alarmed. If the disruption is resolved within a few weeks, then the copper market probably absorbs it as a temporary cost spike. But if it stretches into a longer timeframe, then buyers should start worrying about three things at once. First, higher acid and freight costs. Second, tighter cathode availability from African leach producers. And bear in mind, Africa is the biggest growth center for a very stressed long-term copper market at the moment. And then, finally, a market where new mine supply is already difficult to grow. So, you've got long-term implications then.

I think the most sustained cost pressure seems to be emanating from fuel. So, I think the impact that we've seen on things like diesel, they seem more medium term now than just near term. So, that will percolate into energy prices, which then percolates into higher mining costs for producers. And so, we might see anywhere from a 5% to 10% mining cost rise, production cost rise for some of the major legacy producers in the likes of Chile and Peru even. But once again, it all depends on how quickly peace returns, as it were, and normalcy returns.

The bigger picture is that copper's long-term fundamentals have not changed at the same time. The structural demand story, electrification, grids, data centers, still there. What this conflict does is expose how dependent some parts of the copper chain are on upstream chemical inputs like sulfur. So, for now, I describe it this way. It is a regional vulnerability with global consequences if it lasts long enough. It certainly changed sulfur's image as from being a reagent to a strategic raw material that's used in production, and can have heavy consequences on costs of production.

Fenella: Yeah. And just to add to that, in terms of sulfur and immediate outlook, I think it will be incredibly telling how long the Middle East conflict goes. How long is a piece of string in terms of how much supply can come into Africa? There are other regions that are being explored, like I mentioned earlier, of U.S. Gulf and Canada, Black Sea. But an added constraint at the moment for sulfur globally is Russian export have been banned, and that was put in place at the end of last year. It was extended to the 31st of March, and it's now been extended further to the 30th of June. So, globally, it's looking quite tight even ahead of the Middle East conflict. You've got a large portion of sulfur exports now banned from there. So, it's not looking great in the short term for sulfur in terms of prices. It is looking like it's going to remain firm. And we'll just have to wait and see.

Roxana: Great. Thank you to all three of you for your answers. This has been a really useful and detailed breakdown of our current situation. It looks like it's going to be an interesting few months ahead. That's all for this episode. Thank you to our listeners. And for anyone interested in learning more about our fertilizers and metals coverage, feel free to visit our website at www.argusmedia.com. Otherwise, thank you.