Sulphur price surge creates windfall for China's struggling oil refiners

By Sam Li and Lewis Jackson

BEIJING, March 27 (Reuters) - A surge in sulphur prices turbocharged by the Iran war has turned a marginal byproduct into an earnings booster even as shortages and price controls triggered by the war in Iran heap more pressure on China's struggling refineries.

Separated from oil during refining, sulphur is used in fertilisers and industry and more than half the world's seaborne trade in the byproduct once flowed from the Middle East.

The market was already tight and at near-record prices because of shortages and demand from new industries such as battery making. Since the war, prices have risen by a third in China, which imports roughly half its sulphur.

Two-thirds of domestic production comes from China's oil refiners, which are benefiting from rising prices.

State-owned Sinopec, the world's largest refiner and China's biggest sulphur producer, reported this week its largest jump in margins in four years, up about 9% thanks to a boost from byproducts including sulphur, although profits fell 30% due to declining fuel sales.

The benefit is likely to be most meaningful for China's private refiners because of their preference for sulphur-heavy crude oils from Iran and Canada and, in the case of small so-called "teapots," their already razor-thin margins.

Major private refiner Hengli Petrochemical said in November it produced about 600,000 tons of sulphur annually and higher sulphur prices would support earnings.

The firm did not put a figure on the gain, but the rise in prices in 2025 would translate to an extra 700 million yuan, or about 10% of net profit in 2024, according to Reuters calculations based on consultancy SCI estimates of the refiner's likely sulphur sales price.

Consultancy JLC reported that margins for Shandong’s private refiners, known as teapots, to process imported crude were 244 yuan per tonne in 2025, up 191 yuan per tonne on-year.

Refiners are not the only businesses benefiting from byproducts. Copper smelters, which produce a related byproduct, sulphuric acid, netted a roughly $1.5 billion windfall last year thanks to a similar rally.

TOUGH OUTLOOK

Surging sulphur prices will not, however, fully offset the serious issues facing China's refiners: the rising cost of importing crude oil, a refined fuel export ban that bars refiners from benefiting from the surge in international prices and a domestic fuel price cap that forces refiners to absorb higher costs.

There is also the risk that domestic price caps could be extended to sulphur because of its importance to fertiliser making and the government's desire to insulate the agriculture sector, according to analysts at Citi.

($1 = 6.8681 Chinese yuan renminbi)