Sulfuric Acid: Leading Economic Indicator?

We use sulfuric acid in just about everything we consume. It is used in batteries, paint, fertilizer, ore processing, steel production and water treatment. It is a building block for a number of products like nylon, we pickle our food with it. By volume, it is the largest industrial chemical produced in the US.

There is no futures market that tracks this important commodity. This graph (click to enlarge) highlights selling levels for bulk delivery at Gulf ports.


This is a boom and bust story. If you want evidence of how out of whack things got over the last year and a half, this chart is a good place to look. Prices for sulfuric acid rose 700% in just 18 months. This was when oil was 180 and scrap steel was gold. Now it is 70% below the prices before the bubble. It has been a tough recession.

When the economy tanked, the market value of this acid went with it. Prices through August 2009 have held their lows. It would appear that government economic intervention can impact GDP, but it does not seem to have much impact on demand in the industrial sector.

The Chicago PMI report caused a bit of a hiccup Wednesday. The report showed a seasonally adjusted drop from 50 to 46.1. This lines up with the information on sulfuric. There is not much demand for ‘stuff’ that we use to make other ‘stuff’. This does not jive with the current notion that the economy is benefiting from a significant inventory correction.

Sulfuric acid looks like a high beta Nat Gas chart. Gas is a principal ingredient in production of this acid. So in this case gas is the dog and sulfuric is the tail that gets wagged around. But sulfuric is a very big tail and its demand (or lack thereof) may also cause the dog to shake a bit. For those who follow NG keeping an eye on sulfuric prices could be helpful.


There is another reason to follow this commodity price. One can be sure that the Fed watches it. This is one of many pipeline sources of inflation. Looking at it today you could say that there is little ‘cost push’ inflation from this. But if in four months this commodity price recovers it will be one of those data points that the Fed will have to consider. For what it is worth, the price of Gulf sulfuric acid was back up to $30 at the end of the month. From the Chicago PMI:

Business Activity:
• Prices Paid continued to firm;
• New Orders, Production, and Order Backlogs suffered reverses;
• Employment index continued to retreat at the August rate;

While the overall report was negative, the Prices Paid component showed cost-push pressures. Sulfuric acid was just a part of that increase.

The data on sulfuric acid pricing comes from PentaSul Inc. Hat Tip Fiona.

Comments

[GotLife:]

Is price the only relative data? Wouldn't supply and demand volume be more predictive?

Oct 02 08:24 AM

[Mark Alexander:]

Bruce, thanks again for another very insightful and informative article!

Oct 02 09:09 AM

[bricki:]

Interesting article. Sulfuric acid is the largest volume industrial chemical; most likely any of the top 10 such chemicals would show similar results - chlorine, caustic soda, etc.

Oct 02 09:59 AM

[john s. gordon:]

H2SO4 has been a bellwether of the economy for many years.
you might also look at elemental sulfur.
in 1967 the price of S spiked to about 170/ton. at that price it was deemed economical to recover S from power-plant stack gas, leading to the development of the Wellman-Lord process.
this was before the federal EPA required emission controls.
> jack

Oct 02 10:05 AM

[User 181539:]

pl. indicate a relative stock for to watch other than UNG
Thank you

Oct 02 10:27 AM

[GMiki1:]

Any pure sulfuric acid plays? I particularly note its use in mining.

Oct 02 10:37 AM

[Windsun33:]

I would argue that Copper consumption (not necessarily prices) are equally as valid - and in fact it tracks pretty close to what H2SO4 does in the market. Both are nearly essential to the construction and manufacture of almost anything, though Sulfuric Acid is probably much more important to food & agriculture than Copper.

Oct 02 11:36 AM

[Windsun33:]

Sulfuric Acid is used in almost everything at one stage or another. In fact, about 65% of all H2SO4 is used in making fertilizer.

I know of no pure plays, but nearly all major chemical companies make it, often as a byproduct of such things as LNG.

On Oct 02 10:37 AM GMiki1 wrote:

> Any pure sulfuric acid plays? I particularly note its use in mining.

Oct 02 11:52 AM

[Clavis:]

You could look at

1. ANDINA Minerals Inc. TSX:ADM, the Cerro Azufre deposit

2. Marifil Mines Ltd. TSX:MFM, the Neuquen Sedimentary Basin

3. TVI PACIFIC INC. TSX:TVI, the Canatuan Mine

4. Arehada Mining Limited TSX:AHD, in Dongwuzhumuqinqi

5. Chemtrade Logistics in Canada, one of the world’s largest suppliers of sulfuric acid.
It trades in Toronto under the ticker symbol CHE. You can find a quote on Yahoo using CHE-UN.TO.

It’s a Canadian income trust and pays a monthly distribution of about 10 cents. Based on a price of $11.44, that’s a yield of 10.5 percent. The company appears to be in good financial condition and throws off a lot of cash flow, much of which investors pocket in the distribution.

It looks like an interesting play on what seems at least a temporary scarcity of a key chemical. Chemtrade is not a one-trick pony. It also produces liquid sulfur dioxide and sodium hydrosulfite. The company also sells into a wide range of end markets, so you’re not tied to the fortunes of any single sector. The company has an excellent presentation of its business, complete with slides, on its Web site.

Oct 02 02:02 PM

[Clavis:]

Email from a Chum................

Yes, CHE.UN is a solid investment. Right up until I went all in on the Ring of Fire, it was one of my top investments. I still like them; I'm just not in that market right now.

Chemtrade obtains a fairly substantial part of their sulphuric from Vale's Sudbury smelters (former Inco). With the shutdown of those smelters, there was a natural balancing of supply and demand. The other major source is not directly from natural gas, but from hydrogen sulphide which must be scrubbed out of "sour gas" streams. It's a contaminant of natural gas, so it's a way to turn a profit on something that is worse than a waste material, due to its toxicity. They just burn it in enhanced air flow burners, and spray water on the exhaust fumes. Voila, sulphuric acid.

Another sulphuric play is Noranda Income Fund, which obtains some if its acid from Xtrata Sudbury (former Falconbridge). They also manufacture their own from their zinc smelter waste gases. I don't think NIF is paying a dividend right now. If they can get back into the black, there might be a substantial SP increase. If.

Oct 02 02:37 PM

[cdubya:]

My chemistry professor years and years ago call Sulfuric Acid the KING OF CHEMICALS. he was a smart guy

Oct 02 04:00 PM

[GMiki1:]

Thanks, all! I say mining because I think mining will have to pick up even if the U.S. economy doesn't. (Though I could be wrong.) Of course fertilizer will important as people need to eat. Usually daily.

Oct 02 04:55 PM

[phdinsuntan...:]

Good try Bruce: H2SO4 price fell for falling credit on industrial demand, plus fertilizer oversupply: now supported by metal demand related to the Chinese emergency credit and fiscal push. H2SO4 supply is in part involuntary: metal smelters producing it instead of acid rain. If you want a good leading indicator look at the construction sector, never disappoints you. In any case we have the same conclusions with different indicators, my respects. Nat gas is a different animal, in China most of H2SO4 from coal inputs. The Fed looking at H2SO4/GasNat? Come on, just look last year.

Oct 02 04:57 PM

[TinyTim:]

Windsun33 & Clavis-

You're both right. The main source of sulfuric acid has long been a byproduct of copper smelting. In regions with active copper operations, like Utah, Montana and Arizona in the past, the supply of acid is so great, it's consumer packaged as swimming pool acid and sold for cents a gallon.
As pointed out above, another source of sulfuric acid is purifying sour natural gas streams, where it is also a byproduct.

So the connection between acid and copper is not coincidental. Copper has been touted as a leading indicator in several SA articles (Prof Copper, etc).

Here's an interesting Inco website describing Cu / Ni smelting which mentions acid production several times.
www.inco-sudbury-airqu.../

Oct 02 10:42 PM

[peterthepai...:]

safety first...no food or drink to be consumed in the lab...

the science prof. is off today...

he not be back no more...

for what he thought was H2O...

was H2SO4..!

thanks for your article...we need all the info we can get...

Oct 06 04:04 AM