chilean copper commission research department · projects include cerro dominador’s diego de...

Chilean Copper Commission Research Department

THE CHILEAN SULFURIC ACID MARKET ESTIMATIONS THROUGH 2015

(Revised to April 2009)

DE / 05 / 2009

Intellectual Property Registration No. 180076

Contents

Executive Summary ........................................................................................................i

I. Introduction .............................................................................................................. 1

1.1 Purpose and Contents ......................................................................................... 1

1.2 Explanation............................................................................................................ 1

1.3 Methodology ........................................................................................................ 2

II. The Chilean Sulfuric Acid Market ........................................................................... 4

2.1 Behavior in 1999-2008........................................................................................... 4

2.2 Leading Producers and Consumers ................................................................... 5

2.3 Production and Consumption in 2008 ................................................................ 7

2.4 The Acid Trade (2001-2008) ................................................................................. 9

III. Sulfuric Acid Balance Estimations (2009-2015) ................................................... 16

3.1 Domestic Balance .............................................................................................. 16

3.2 Regional Balance ............................................................................................... 16

3.3 Estimated SX-EW Production.............................................................................. 17

IV. The Chilean Sulfuric Acid Market: Estimations Through 2015 ............................ 18

4.1 Short-Term (2009-2010) ....................................................................................... 18

4.2 Medium-Term (2011-2013).................................................................................. 19

4.3 Long-Term (2014-2015) ....................................................................................... 20

4.4 National Market Balance: Regional Distribution.............................................. 20

V. The World Market ................................................................................................... 22

5.1 Overview.............................................................................................................. 22

5.2 Sulfuric Acid, Sulfur and Related Prices ............................................................ 22

5.3 The Foreign Sulfuric Acid Supply........................................................................ 25

5.4 The Peruvian Supply............................................................................................ 25

VI. Conclusions ............................................................................................................ 27

i

Executive Summary

The Chilean mining industry is the world’s most intensive sulfuric acid user. SX-EW

copper cathode production accounts for 37 percent of overall Chilean mine copper production and 66 percent of world production. While most demand is met locally by copper smelters, the remainder needs to be imported. Given its

relevance to the nation’s copper mining industry, the Chilean Copper Commission regularly tracks the domestic sulfuric acid market. This edition conveys Cochilco’s perspectives on the issue through 2015.

This report projects the Chilean sulfuric acid market balance under various scenarios, based on data submitted by leading domestic producers and consumers.

1. The Chilean Sulfuric Acid Market, 1999-2008 The report begins with a review of the Chilean market, especially smelter production of sulfuric acid and its use by a thriving industry positioned as the world’s largest producer of SX-EW copper cathodes. As consumption rises well above the domestic production capacity, Chile has become a key world

market player that must deal with a structural deficit. Market behavior over the past decade is summarized in the table below.

Table A: Chilean Sulfuric Acid Production and Apparent Consumption (1999-2008)

(KMT) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Production 3,296 3,352 3,659 3,838 4,480 4,615 5,009 5,027 4,806 4,818

Plus Imports 381 529 559 523 488 340 552 607 1,285 2,399

Minus Exports (133) (83) (2) (74) (162) (150) (481) (131) (124) (84)

Apparent Consumption 3,544 3,797 4,216 4,287 4,806 4,805 5,080 5,503 5,967 7,133 Source: Cochilco Yearbook of Copper and Other Mineral Statistics, 1989-2008.

The report identifies leading producers, notably public-sector smelters, as well as leading consumers, notably copper ore leaching operations on stream since the previous decade plus several major new operations.

This examination reveals an asymmetric market with demand concentrated in the north and production in the center, making sulfuric acid transportation,

handling and storage highly relevant logistical issues.

Meeting increased acid demand required a corresponding rise in imports. In 2008, these stood at nearly 2.4 million tons, an 87 percent increase over 2007

worth US$451 million CIF, in turn a 482 percent increase over the year before. CIF

ii

prices in 2008 averaged US$188 a ton versus US$72.7/ton in 2007. Quarterly

changes in import prices are shown below.

Chart A: Sulfuric Acid Import Prices, CIF Mejillones (Q1 2001-Q4 2008)

Source: Cochilco, based on Customs data.

Export flows, on the other hand, fell to 83,900 TPY with a price average of US$178.2/ton FOB.

2. Estimates For 2009-2015

As explained in the methodology notes,1 the domestic sulfuric acid balance evaluates four scenarios (Baseline, Maximum Production, Maximum

Consumption and Potential). Each is in turn projected over the short, medium and long-terms. Results are shown on the table below.

1 See Section 1.3.

iii

Table B: Domestic Sulfuric Acid Balance, 2009-2015 (KMT)

Short-Term Medium-Term Long-Term

Description 2009 2010 2011 2012 2013 2014 2015

Baseline Production (1) 5,055 5,385 5,742 6,156 6,221 6,255 6,463

Potential Production (2) 0 0 70 200 200 200 700

Maximum Production (3) 5,055 5,385 5,812 6,356 6,421 6,455 7,163 Baseline Consumption (4) (7,428) (7,625) (7,440) (7,252) (7,083) (6,520) (6,202)

Potential Consumption (5) 0 0 (715) (865) (955) (1,165) (1,170)

Maximum Consumption (6) (7,428) (7,625) (8,155) (8,117) (8,038) (7,685) (7,372) Balance Under Each Scenario

Baseline (1-4) (2,374) (2,241) (1,698) (1,096) (862) (265) 261

Maximum Production (3-4) (2,374) (2,241) (1,628) (896) (662) (65) 961

Maximum Consumption (1-6) (2,374) (2,241) (2,413) (1,961) (1,817) (1,430) (909)

Potential (3-6) (2,374) (2,241) (2,343) (1,761) (1,617) (1,230) (209) Source: Cochilco, based on producer and consumer company reports to March 2009.

The likely evolution of the Chilean sulfuric acid market is illustrated in the chart

below.

Chart B: Sulfuric Acid Market Balance By Scenario (2009-2015)

Source: Cochilco, based on producer and consumer company reports.

iv

3. Conclusions Our review of the Chilean sulfuric acid market suggests the following conclusions:

a) Sulfuric Acid and Copper Production SX-EW copper cathode production is expected to reach 2 million TPY in 2008,

peak at 2.15 million TPY in 2010, then begin to slide unless new major projects come on stream. Significantly, the consumption rate (i.e., acid required to produce a ton of

copper cathodes) has expanded from 2.86 tons in 2004 to 3.45 in 2008 and could reach 4.0 by 2015.

b) Acid Supply and Prices in 2008 As noted in previous reports, a severe sulfuric acid shortfall was anticipated for

2008 as a result of rising demand from new large-scale leaching facilities such as Spence, the Escondida Sulfide Leach Project and Gabriela Mistral, plus smaller operations capitalizing on high copper prices.

Increased demand necessitated imports of over 2.3 million tons, a twofold and fourfold increase over 2007 and 2006, respectively. As shown on Table 13, these imports were made under adverse conditions, including a tight world sulfur and

sulfuric acid market in H2 2007 and an all-time price peak in mid-2008. This scenario had a serious operational impact on the Chilean market and

severely taxed its logistics infrastructure. Higher acid prices, coupled with rising consumption, made costs soar.

c) Weaknesses in the Domestic Acid Supply While acid consumption has exploded, domestic production has fallen by 200,000 TPY over the 5 million TPY peak posted in 2005. Although production at

the Chagres Smelter has increased, this has not sufficed to offset steep declines in Codelco and Altonorte production.

This condition should revert starting this year, when a return to 2005 levels is expected. This should be followed in short order by increases at Altonorte and Chagres, then Codelco in the medium term.

d) New Supply From Sulfur Plants

v

Deferment of the Codelco Smelter-Refinery Project opened up the field to sulfur-

burning options, with two major projects now underway. Some smaller-scale initiatives failed to come to fruition.

Noracid -an affiliate of the Ultramar and Belfi groups, also active in Puerto Mejillones- is building a 720,000 TPY plant in this port, with startup slated for early 2011. This facility, intended to serve a group of leading Antofagasta mining

companies, will leverage the synergies offered by their joint terminal, acid storage and loading and offloading infrastructure. It will also generate electricity to be sold through the SING power grid.

Haldeman, for its part, is planning a second plant similar to its 140,000 TPY sulfur burning plant in Sagasca, Tarapacá. As this facility is intended to serve a planned company expansion, it should have no significant market impact if built.

e) Chilean Market Prospects Through 2015

Under a baseline scenario, the Chilean sulfuric acid shortfall should tend to decrease gradually, level off in 2014, then turn around completely in 2015. However, new consumption from potential projects could vastly exceed

production. In this scenario the market would continue to show a deficit, albeit much less strongly than at present.

Leaching projects most likely to materialize include Sulfolix (El Abra), Tres Valles (Vale), and new areas at Codelco Norte and Caserones. Reasonably likely projects include Cerro Dominador’s Diego de Almagro and Codelco Salvador’s

San Antonio Oxides. Prospects under exploration which might materialize after the 2015 cutoff date were not considered in this study.

New production projects are limited to a 10-percent capacity boost by Noracid and to Haldeman’s project, which should have no real market impact. Also, should Codelco choose to go that route, the Ventanas Smelter might be expanded to process more Andina concentrates starting in 2015.

Although Peruvian acid is plentiful in the short term, vigorous copper mining growth patterned after Chile should significantly expand SX-EW operations.

As such, the most likely prospect facing the Chilean sulfuric acid market is continued, albeit less pronounced shortage. While Chile will continue to rely on

imports, Peruvian supplies should take a back seat to central Chile sources and to the Antofagasta sulfur plant, which should go some way to relieving the chronic shortage in this region.

vi

f) Price Prospects Sulfuric acid prices will continue to be dictated by phosphate fertilizer prices, a determinant of sulfur prices. Although fertilizer demand has plunged for now, this

is regarded as no more than a short-term reaction to inflated prices. Analysts will continue to watch agricultural policy changes in China and India.

Should these countries resume plans to stimulate agricultural productivity for both food and biofuel production purposes, prices will be sure to rebound. Analysts will also keep an eye on oil prices, phosphate fertilizer use and biofuel

production. Given the role of Middle Eastern producers in dictating sulfur prices, as long as oil

remains under US$100 a barrel -a price level that discourages biofuel production- the sulfur market’s structural surplus should help keep prices low.

Conversely, should oil prices make substitution attractive, sulfur prices might rise along with demand for fertilizer production, in turn pushing biofuel costs up. Also significant is the growing role of indirect sulfuric acid production from

copper and other smelters. During weak demand cycles, smelter acid may well supplant part of direct production, keeping both sulfur and sulfuric acid prices down.

1

I. Introduction 1.1 Purpose and Contents

This is the 2009 edition in a series of annual reports on the Chilean sulfuric acid market prepared by the Chilean Copper Commission (Cochilco). These reports are published as part of Cochilco’s ongoing examination of metal and industrial

mineral markets and strategic issues impacting the Chilean mining industry. This report reviews significant changes in 2008 in world commodity markets, especially the sulfuric acid market. It also estimates Chilean production and

consumption scenarios going forward. These annual reports seek to provide relevant facts and figures to businesses and

individuals concerned with mining market issues, especially those directly or indirectly involved in the sulfuric acid industry.

Section II provides an overview of the Chilean sulfuric acid market, including key producers and consumers, historical industry data for 1999-2008, and relevant developments through 2008.

Section III estimates sulfuric acid production and consumption and national and regional market balances through 2015, based on data provided by leading mining companies.

Section IV examines these estimates and resultant scenarios in chronological order, including sulfuric acid balance behavior in relevant regions.

Section V places the world sulfur and sulfuric acid markets in context, with emphasis on unprecedented 2007 and 2008 prices and associated impact on

Chile’s import-dependent domestic market. Conclusions are shown on Section VI.

1.2 Explanation Cochilco tracks sulfuric acid issues due to their relevance to the Chilean copper

mining industry, notably producers such as copper smelters and consumers such as sulfide and oxidized ore leaching operations.

In addition to meeting the information needs of the public in general, publicly available information on sulfuric acid issues is key to appropriate decision-making by producers, consumers, traders, logistics service providers, and regulators.

2

1.3 Methodology 1.3.1 Scope This report is concerned with sulfuric acid production and consumption in Chile. Data used was provided by producers and consumers, who were asked to

estimate production and consumption from 2009 through 2015. Their responses were received and tabulated in late 2008 and early 2009. The domestic sulfuric acid balance does not include supplies from foreign

competitors such as Peru, although some details about this market are provided as part of a review of domestic market prospects.

While the broad timeframe used makes it more difficult for respondents to accurately estimate their production and/or consumption profiles and makes more distant projections somewhat tentative, it helps identify leaching operation

decline as well as potential new projects. Data on sulfuric acid imports and exports was culled from public sources, based on Customs data.

1.3.2 Scenarios by Degree of Certainty

The scenarios below are based on the degree of certainty assigned to available data. Projects both existing and under construction are considered highly certain. Less so are projects considered for startup through 2015, which may

materialize partially or never. Scenarios are as follows: a) Baseline: A balance for the period based on annual production and

consumption profiles from operations either existing or under construction. This scenario provides the underpinnings of our projection, since the profiles involved depend only on the evolution of activities underway. Additional, yet less certain scenarios are built upon this foundation.

b) Maximum Production: An intermediate scenario based on factoring in

sulfur roasting plants under consideration but not yet approved. The

balance for each year is calculated based on maximum production and basic consumption profiles. This yields an estimate of available market room under the most adverse conditions, with demand only from existing

operations.

c) Maximum Consumption: An additional intermediate scenario based on factoring in mining projects under consideration but not yet approved. The

3

balance for each year is calculated based on maximum consumption

and basic production profiles. As potential consumption profiles are highly likely to materialize, this scenario yields an estimate of the domestic acid situation under adverse conditions, with supply only from existing plants.

d) Potential: An additional scenario built by factoring in potential production

and consumption profiles from projects under consideration by acid

producers and consumers. While these potential profiles are less likely to materialize, this scenario provides insights into the overall sulfuric acid production and consumption potential in 2009-2015 and helps determine the likelihood of the local acid market moving from shortage to surplus.

1.3.3 Timeframe

The period under review has been segmented into three sections, based on expected market behavior:

a) Short-Term (2009-2010): Reflecting existing operations, this is the nearest, most certain period. Noted for consolidation of the strong consumption profile emerging in 2006, followed by lagging production. Resulting annual balances attest to a rising shortage.

b) Medium-Term (2011-2013): Factors in potential startup of consumer and

some production projects. It helps shed light on their impact but adds

uncertainty to projections. c) Long-Term (2014-2015): While projections for this time period are less

reliable, they provide insights into the impact of leaching operation decline.

4

II. The Chilean Sulfuric Acid Market This Section summarizes Chilean sulfuric acid market behavior over the past 10 years as well as estimated production and consumption through 2015.

2.1 Behavior in 1999-2008

Accounting for most of the rapid growth undergone by the Chilean sulfuric acid market is an expanding copper mining industry, where smelters and SX-EW plants have become key producers and consumers. The chart below illustrates the relative importance of hydrometallurgical copper production in Chile.

Chart 1: Copper Production in Chile, 1999-2008 Source: Cochilco Yearbook of Copper and Other Mineral Statistics 1989-2008.

SX-EW production in the period rose by 600,000 TPY, increasing its share of total mine production from 31 to 37 percent. More refined copper is produced by hydrometallurgical than pyrometallurgical (i.e., smelter and refinery) means

since 2001. Chile is the world’s largest SX-EW producer, with a 66 percent share in 2008 (up 7

percent over 1999), followed by the U.S. and Peru with 17.7 and 5.4 percent, respectively.

Mining growth has resulted in major shifts in the sulfuric acid market. Annual production, consumption, imports and exports are shown on Table 1.

5

Table 1: Chilean Sulfuric Acid Production and Apparent Consumption (1999-2008)

(KMT) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Production 3,296 3,352 3,659 3,838 4,480 4,615 5,009 5,027 4,806 4,818

Plus Imports 381 529 559 523 488 340 552 607 1,285 2,399

Minus Exports (133) (83) (2) (74) (162) (150) (481) (131) (124) (84)

Apparent Consumption 3,544 3,797 4,216 4,287 4,806 4,805 5,080 5,503 5,967 7,133 Source: Cochilco Yearbook of Copper and Other Mineral Statistics, 1989-2008.

2.2 Leading Producers and Consumers 2.2.1 Sulfuric Acid Plants and Projects The table below shows producer location, ownership type and destination of

production (own supply within the region and/or sale to third parties).

Table 2: Leading Sulfuric Acid Producers

Ownership Destination Status Region

Producer Operation or Project Public Private Self Supply Operation Project

I Haldeman-Sagasca X X X Baseline Potential

II Xstrata-Altonorte X X X Baseline

II Codelco-Chuquicamata X X X Baseline

III Codelco-Potrerillos X X X Baseline

III Enami-Paipote X X X Baseline

V Anglo American-Chagres X X X Baseline

V Codelco-Ventanas X X X Baseline

Metro Molymet-Plant Mo X X X Baseline

VI Codelco-Caletones X X X Baseline

Source: Cochilco.

All producers earmark a portion of their output for their own use at related operations. Existing and planned operations are given baseline and potential

status, respectively. In the former category, only Haldeman Mining has a potential project: a second sulfur roasting plant matching the acid production capacity of its Sagasca facility. Section III notes an additional sulfur roasting project contemplated by Ultramar and Belfi affiliate Noracid.

2.2.2 Leading Consumer Projects and Operations Table 3 shows leading consumer location, ownership type and acid origin (own or third-party). Existing operations and planned leaching projects and/or

6

expansions with a consumption potential of 30,000 tons a year and up are given

baseline status. Smaller mining and industrial consumers are also shown. Potential cases include projects in a preliminary stage and therefore less certain

to materialize before the end of the ten-year period under review. These include leached material processing at Gaby, development of Lomas Bayas II adjacent to the existing operation, the Salvador Division’s San Antonio Oxides Project,

Cerro Dominador’s Diego de Almagro Project and development of the hydrometallurgical portion of Pan Pacific Copper’s Caserones Project.

Table 3: Leading Sulfuric Acid Consumers Ownership Source Status

Region

Consumer Public Private Self External Operation Project

XV Quiborax2 X X Baseline

I Haldeman - Sagasca X X Baseline

I BHP - Cerro Colorado X X Baseline

I Collahuasi X X Baseline

I Teck- Quebrada Blanca X X Baseline

II Codelco Norte X X Baseline

II Codelco-Gaby X X Baseline Potential

II Freeport- El Abra X X Baseline Potential

II Antof. Min.- El Tesoro X X Baseline

II BHP - Escondida X X Baseline

II Xstrata-Lomas Bayas X X Baseline Potential

II Milpo - Iván X X Baseline

II Cerro Dominador X X Baseline

II Anglo-Am. -Mantos Bl. X X Baseline

II Mantos de la Luna X X Baseline

II Antof. Min. - Michilla X X Baseline

II BHP- Spence X X Baseline

II Barrick - Zaldívar X X Baseline

III Codelco-Salvador X X Baseline Potential

III Cerro Dom. - D. Almagro X X Potential

III Centenario- Franke X X Baseline

III Enami-Plants X X Baseline

III Punta del Cobre X X Baseline

III Cemin - Dos Amigos X X Baseline

III Anglo-Am. - Manto Verde X X Baseline

III P. P. Copper - Caserones X X Potential

IV Teck - Carmen de And. X X Baseline

V Cemin - A. Catemu X X Baseline

V Anglo-Am. El Soldado X X Baseline

Met Anglo-Am. -Los Bronces X X Baseline

2 Boric acid producer in Arica-Parinacota.

7

VI Codelco-El Teniente X X Baseline

South Wood pulp plants X X Baseline

Source: Cochilco.

2.3 Production and Consumption in 2008

2.3.1 Regional Distribution Shown below is distribution of sulfuric acid production and consumption in 2008:

Table 4: Distribution of Sulfuric Acid Production and Consumption in 2008 (KMT)

Production Consumption3 (Shortfall)

Surplus

Country Total 4,818 100% 7,084 100% (2,266)

Region Arica + Tarapacá

Antofagasta

Atacama

Coquimbo

Valparaíso

Metropolitan

O’Higgins

Other

104

1,978

729

0

822

70

1,115

0

2.2

41.1

15.1

0.0

17.1

1.5

23.1

0.0

936

4,965

719

62

94

116

92

100

13.2

70.1

10.1

0.9

1.3

1.6

1.3

1.4

(832)

(2,987)

10

(62)

728

(46)

1,023

(100)

Supply Type Self

Commercial

2,063

2,755

42.8

57.2

2,063

5,021

29.1

70.9

0

(2,266)

Ownership Public

Private

3,477

1,341

72.2

27.8

1,809

5,275

25.5

74.5

1,668

(3,934)

Source: Cochilco, based on company data.

2.3.2 Production/Consumption Ratios Acid consumption in 2008 stood at 7.1 million tons. Some 6.8 million were used by

copper mining operations to produce 1.97 million tons SX-EW copper cathodes, an average consumption rate of 3.45 tons of acid per ton of copper.

Mining consumption rates range from below 1 to 16.1, depending on geochemistry of ores, soluble copper grades, technology used, and scale of production. If total production is segmented by quintiles4 (394.8 kMT Cu in 2008) significant consumption differences among segments become evident.

3 Estimates based on consumer company reports. May not match apparent consumption in Table 1 due to

inventory changes and bias in data reported. 4 Portion of a frequency distribution containing one fifth of the total sample.

8

Table 5: Sulfuric Acid Consumption by Quintile of Copper Production

Acid Consumption Copper Production Consumption Quintile

kMT Acid % kMT Cu % Ton Acid/Ton Cu

First 680 10.0 394.8 20.0 1.72

Second 965 14.2 394.8 20.0 2.44

Third 1,160 17.1 394.8 20.0 2.94

Fourth 1,497 22.0 394.8 20.0 3.79

Fifth 2,499 36.7 394.8 20.0 6.33

Total 6,801 100.0 1,974.0 100.0 3.45

Source: Cochilco.

The chart below shows consumption rate behavior in leading operations. Sulfuric acid consumption is shown in ascending order.

Chart 2: SX-EW Copper Production by Rate of Sulfuric Acid Consumption (2008)

Source: Cochilco.

The high acid consumption rate in 2008 (3.45 tons) ratifies a growing trend (2.86 tons in 2004, 3.24 in 2006) related to falling leached ore quality as operations cranked up production to capitalize on the price bonanza.

9

Acid production in 2008 stood at 4.82 million tons, including 4.6 million produced

by copper smelters. These facilities produce about 1 ton of sulfuric acid per ton of copper concentrate processed or 2.9-3 tons of acid per ton of refined copper, depending on concentrate type and rate of sulfur gas collection.

2.4 The Acid Trade (2001-2008) As hydrometallurgical copper processing grows, Chile has become a major sulfuric acid trader. In addition to importing large quantities to make up for structural shortages, Chile also exports temporary surpluses.

2.4.1 Imports

Chart 3: Sulfuric Acid Import Prices, CIF Mejillones (Q1 2001-Q4 2008)


Chart 3 above shows average sulfuric acid import prices and quarterly highs and lows since 2001. Table 5 below provides additional details.

10

Table 5: Sulfuric Acid Imports (Jan. 2001 – Dec. 2008)

Period Tons US$‘000 CIF5 US$/Ton Avg. US$/Ton

Q1

Q2

Q3

Q4

Total 2001

170,962

178,109

149,320

60,070

558,461

4,518,1

4,883,0

3,815,2

1,651,5

14,867,8

26.4

27.4

25.6

27.5

26.6

20.0 - 35.0

21.0 - 42.2

20.5 - 33.2

20.5 - 35.0

20.0 - 42.2

Q1

Q2

Q3

Q4

Total 2002

178,506

155,300

102,348

86,361

522,515

5,459,5

4,354,5

2,962,3

3,130,9

15,907,3

30.6

28.0

28.9

36.3

30.4

25.0 - 36.8

23.5 - 38.9

26.5 - 39.8

26.4 - 55.3

23.5 - 55.3

Q1

Q2

Q3

Q4

Total 2003

158,962

114,743

107,403

106,713

487,821

6,219,2

3,533,8

3,446,4

3,647,1

16,846,5

39.1

30.8

32.1

34.2

34.5

28.0 - 50.1

15.0 - 40.1

15.0 - 40.5

22.4 - 52.6

15.0 - 52.6

Q1

Q2

Q3

Q4

Total 2004

80,941

76,185

83,154

99,946

340,226

3,154,0

3,202,1

3,362,5

5,648,8

15,367,4

39.0

42.0

40.4

56.5

45.2

20.0 - 52.6

32.2 - 74.7

22.1 - 72.0

22.1 - 78.0

20.0 - 78.0

Q1

Q2

Q3

Q4

Total 2005

179,828

150,573

75,313

146,693

552,407

10,109,9

9,529,5

3,483,9

8,146,9

31,270,2

56.2

63.3

46.3

55.5

56.6

22.1 - 81.0

22.5 - 104.7

22.5 - 74.5

22.5 - 78.2

22.1 - 104.7

Q1

Q2

Q3

Q4

Total 2006

174,993

120,398

135,986

175,491

606,868

10,045,9

7,278,4

7,143,7

10,165,9

34,633,9

57.4

60.5

52.5

57.9

57.1

23.0 - 78.2

23.0 - 83.2

23.0 - 88.2

26.7 - 98.5

23.0 - 98.5

Q1 Q2

Q3

Q4

Total 2007

265,259 300,983

358,409

360,437

1,285,088

20,349,8 17,848,2

24,194,6

31,081,7

93,474,2

76.7 59.3

67.5

86.2

72.7

24.0 - 105.0 25.3 - 122.0

39.0 - 162.6

31.0 - 215.0

24.0 - 215.0

Q1

Q2

Q3

Q4

Total 2008

626,324

556,877

664,851

550,406

2,398,457

109,827,7

86,176,6

160,095,0

94,896,8

450,996,1

175.4

154.7

240.8

172.4

188.0

44.0 - 324.4

38.0 - 367.7

38.0 - 480.0

38.0 - 480.0

38.0 - 480.0


Shown below is annual import data by country of origin, including amounts,

global value, and average unit value for each year. The freight and insurance portion illustrates the relevance of logistical factors. Tables 6.1 and 6.2 show figures for 2001-2005 and 2006-2008, respectively.

5 Unit value is CIF for most imports except for Codelco, which uses a C+F variant that excludes insurance.

Does not include sulfuric acid imports for use by laboratories and the explosives industry.

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Table 6.1: Sulfuric Acid Imports by Country of Origin (2001-2005)

Country of Origin / Year

Amount (Tons)

CIF Value (US$‘000)

Average Value (US$/Ton CIF)

F + I (US$/Ton)

Japan

Peru

Germany

Australia U.S.

Mexico

Korea

Philippines

Canada

Total 2001

181,722

168,191

60,912

52,470 36,644

32,911

14,054

11,444

113

558,461

4,209,3

4,664,6

1,654,1

1,479,1 1,152,2

1,056,0

371,7

277,9

2,9

14,867,8

23.2

27.7

27.2

28.2 31.4

32.0

26.4

24.3

25.5

26.6

13.8

13.8

19.1

20.0 20.6

24.4

13.2

12.2

22.0

Japan

Peru

Mexico Sweden

Philippines

Canada

Switzerland

Total 2002

220,034

108,981

82,238 74,488

18,207

10,183

8,383

522,514

5,950,6

3,621,2

3,074,5 2,112,7

582,6

271,9

293,8

15,907,3

27.0

33.1

37.4 28.4

32.0

26.7

35.0

30.2

10.5

13.8

26.6 27.9

25.8

20.0

27.5

Japan

Peru

Sweden

Korea

Australia Spain

Algeria

Total 2003

191,846

105,717

96,899

49,487

25,190 12,637

6,045

487,821

6,846,4

3,248,6

2,763,5

2,461,7

933,7 353,8

238,8

16,846,5

35.7

30.7

28.5

49.7

37.1 28.0

39.5

34.5

3.4

14.2

24.9

30.1

30.1 26.0

12.5

Japan

Peru

Sweden

South Korea

Philippines

Mexico Total 2004

122,618

97,631

78,819

21,988

16,000

3,170 340,226

4,413,5

3,605,6

4,328,7

1,583,1

1,201,5

235,0 15,367,4

36.0

36.9

54.9

72.0

75.1

74.1 45.2

4.4

14.2

37.5

43.5

50.1

37.1

Japan Mexico

Peru

South Korea

Sweden

Bulgaria

Philippines

Total 2005

161,270 150,880

107,412

68,504

41,935

19,024

3,382

552,407

5,617,2 11,071,9

4,362,2

5,181,7

3,018,4

1,764,8

254,0

31,270,2

34.8 73.4

40.6

75.6

72.0

92.8

75.1

56.6

1.7 42.2

15.8

45.4

53.3

66.2

50.1


Table 6.2: Sulfuric Acid Imports by Country of Origin (2006-2008)

Country of Origin / Year

Amount (Tons)

CIF Value (US$‘000)

Average Value (US$/Ton CIF)

F + I (US$/Ton)

Mexico

Japan

South Korea

Peru

Germany

Finland

Sweden

Canada Bulgaria

Total 2006

184,012

102,105

96,389

89,615

49,741

31,648

30,697

16,155 6,506

606,868

12,485,3

4,592,9

6,290,9

3,831,0

2,801,4

1,507,9

1,627,0

856,6 640,9

34,633,9

67.9

45.0

65.3

42.7

56.3

47.6

53.0

53.0 98.5

57.1

40.3

2.2

44.6

16.8

48.2

38.3

52.7

52.0 64.2

Peru 499,280 25,812,8 51.7 13.0

12

Japan

South Korea

Philippines

Mexico

Germany

Bulgaria Poland Spain

Sweden

U.S.

Total 2007

286,694

223,178

71,464

51,405

45,305

37,881

20,028 18,352

17,075

14,425

1,285,087

19,243,0

23,025,6

8,764,0

2,683,8

3,240,3

4,076,9

1,622,3 1,892,9

1,699,0

1,413,6

93,474,2

67.1

103.2

122.6

52.2

71.5

107.6

81.0 103.1

99.5

98.0

72.7

41.2

70.0

61.8

19.8

11.0

73.3

56.9 64.3

70.2

48.1

Peru

South Korea

Japan

India

China

Philippines Spain

Mexico

Indonesia

Canada

Sweden

Bulgaria Poland

Egypt Total 2008

683,504

391,376

370,320

335,895

210,482

203,570 51,336

48,877

22,517

21,079

18,673

18,460

13,637

8,732 2,398,458

54,629,0

73,994,2

62,646,7

91,712,7

58,146,1

55,807,9 10,396,7

16,626,9

8,353,1

4,979,5

2,357,9

4,270,2

3,276,7

3,798,4 450,996,0

79.9

189.1

169.2

273.0

276.3

274.1 202.5

340.2

371.0

236.2

126.3

231.3

240.3

435.0 188.0

13.4

84.7

77.2

103.1

90.4

97.0 80.5

50.4

111.7

109.7

77.2

85.4

95.3

140.6


Table 7 below shows imports since 2001 by importer, including transaction amounts, value, and domestic market share. The CIF Mejillones6 price is a market

yardstick for sulfuric acid pricing. While importers are led by mining companies and industry traders, Codelco remains a key player.

Table 7: Sulfuric Acid Imports by Importer

Importer / Year Tons US$‘000 CIF US$/Ton Avg.

Share (%)

Interacid 216,507 5,142.2 23.8 38.8

Codelco 147,415 4,106.1 27.9 26.4

Miners 146,638 4,363.1 29.8 26.3

Chemtrade7 47,901 1,256.3 26.2 8.6

Total 2001 558,461 14,867.8 26.6 100.0

Codelco 254,640 6.977.9 27.4 48.7

Miners 138,607 4,507.7 32.5 26.5

Interacid 82,238 3,074.5 37.4 15.7

Chemtrade 47,029 1,347.3 28.6 9.0

Total 2002 522,514 15,907.3 30.4 100.0

Codelco 181,846 6,320.5 34.8 37.3

Miners 110,446 3,125.0 28.3 22.6

Trans Sud 95,245 2,986.8 31.4 19.5

Interacid 84,677 3,921.2 46.3 17.4

Chemtrade 10,472 261.8 25.0 2.1

BCT Chemtrade 5,136 231.1 45.0 1.1

Total 2003 487,822 16,846.5 34.5 100.0

Codelco 112,652 3,889.5 34.5 33.1

6 Mejillones, Antofagasta is the main Chilean port of entry for sulfuric acid imports. 7 In 2003 Chemtrade Chile Ltda. branched off into BCT Chemtrade Ltda. and Comercial Trans Sud Ltda.

13

Trans Sud 90,189 3,687.1 40.9 26.5

Miners 63,402 3,013.4 47.5 18.6

BCT Chemtrade 44,847 2,816.9 62.8 13.2

Interacid 29,136 1,960.5 67.3 8.6

Total 2004 340,226 15,367.4 45.2 100.0

Miners 218,967 15,886.9 72.6 39.6

Codelco 161,270 5,617.2 34.8 29.2

Trans Sud 88,390 3,331.4 37.7 16.0

Interacid 53,669 4,183.8 78.0 9.7

BCT Chemtrade 30,111 2,250.9 74.8 5.5

Total 2005 552,407 31,270.2 56.6 100.0

Miners 207,297 13,073.5 63.1 34.2

Codelco 144,598 7,573.8 52.4 23.8

Interacid 115,934 7,532.5 65.0 19.1

Trans Sud 89,321 3,299.4 36.9 14.7

BCT Chemtrade 49,718 3,154.7 63.5 8.2 Total 2006 606,868 34,633.9 57.1 100.0

Miners 573,990 37,457.7 65.3 44.7

Interacid 212,878 18,473.1 86.8 16.6

Trans Sud 180,557 12,085.0 66.9 14.0

BCT Chemtrade 161,657 15,678.0 97.0 12.6

Codelco 156,005 9,780.3 62.7 12.1

Total 2007 1,285,087 93,474.2 72.7 100.0

Miners 1,266,840 229,451.4 181.1 52.8

Interacid 437,979 103,809.6 237.0 18.3

Trans Sud 287,189 37,719.2 131.3 12.0

Codelco 204,998 38,066.3 185.7 8.5 BCT Chemtrade 201,452 41,949.6 208.2 8.4

Total 2008 2,398,458 450,996.1 188.0 100.0


2.4.2 Exports Although Chile has an acknowledged structural deficit, some local producers have standing supply contracts with neighboring countries which they are

required to fulfill. In addition, temporary excess production often leads to surpluses which cannot be stored or sold domestically. Such surpluses are often sold on the spot market under less advantageous conditions.

Shown below is annual distribution by destination plus volume amount, global FOB value and resulting unit value. Tables 8.1 and 8.2 show figures for 2001-2005 and 2006-2008, respectively.

Table 8.1: Sulfuric Acid Exports by Destination (2001-2005)

Destination & Year Tons US$‘000 FOB US$/Ton

Argentina

Bolivia

Total 2001

1,316

550

1,866

44.4

36.4

80.8

33.7

66.2

43.3

Peru Brazil

Bolivia

Total 2002

57,417

10,314

5,949

73,680

1,477.9

350.7

303.4

2,132,0

25.7

34.0

51.0

28.9

14

Brazil

Peru Bolivia

Argentina

Costa Rica

Total 2003

77,351

72,487

10,723

1,740

23

162,324

2,362.1

1,933.8

449.4

47.8

2.5

4,795.6

30.5

26.7

41.9

27.5

110.0

29.5

Peru

Brazil Bolivia

Argentina

Costa Rica

Total 2004

107,926

26,098 13,615

2,394

259

150,292

4,618.8

950.1 772.7

99.6

31.5

6,472.7

42.8

36.4 56.8

41.6

121.6

43.1

U.S.

Peru

Brazil

Cuba

Bolivia

Argentina

Mexico Costa Rica

Total 2005

199,401

180,311

43,692

29,300

12,420

10,633

5,084 52

480,893

1,978.6

10,618.1

378.4

795.0

974.5

612.1

68.6 6.7

15,432.0

9.9

58.9

8.7

27.1

78.5

57.6

13.5 128.8

32.1


Table 8.2: Sulfuric Acid Exports by Destination (2006-2008)

Destination & Year Tons US$‘000 FOB US$/Ton

Brazil

Peru

Argentina

Bolivia

Total 2006

55,921

48,192

14,501

12,699

131,313

1,048.6

2,163.9

521.6

954.5

4,688.6

18.8

44.9

36.0

75.2

35.7

Peru

Brazil

Cuba

Bolivia

Argentina

Total 2007

42,028

37,514

20,036

12,627

11,948

124,153

2,083.5

2,276.3

1,247.2

940.7

535.1

7,082.8

49.6

60.7

62.2

74.5

44.8

57.0

U.S.

Cuba

Bolivia

Argentina

Brazil

Peru

Total 2008

33,261

17,812

10,596

9,095

8,149

5,000

83,913

6,269.3

2,986.7

2,588.8

2,304.2

559.1

245.1

14,953.2

188.5

167.7

244.3

253.4

68.6

49.0

178.2


Table 9 below shows exports by exporter and share.

15

Table 9: Chilean Sulfuric Acid Exports by Exporter

Exporter / Year Tons US$‘000 FOB US$/Ton Avg. Share (%)

Enami 1,316 44.4 33.7 70.5

Codelco 550 36.4 66.2 29.5

Total 2001 1,866 80.8 43.3 100.0

Interacid 47,593 1,134.0 23.8 64.6

Codelco 26,087 998.0 38.3 35.4

Total 2002 73,680 2,132.0 28.9 100.0

Codelco 84,255 2,420.6 28.7 51.9

Trans Sud 60,550 1,904.3 31.4 37.3

Interacid 15,756 420.2 26.7 9.7

Enami 1,740 47.9 27.5 1.1

Other 23 2.6 113.0 0.0

Total 2003 162,324 4,795.6 29.5 100.0

Interacid 61,569 2,524.4 41.0 41.0

Trans Sud 47,130 1,809.5 38.4 31.4

Codelco 38,938 2,007.8 51.6 25.9

Enami 2,150 81.4 37.9 1.4

Other 503 49.6 98.7 0.3

Total 2004 150,292 6,472.7 43.1 100.0

Codelco 279,500 7,337.1 26.3 58.1

Interacid 101,798 3,824.6 37.6 21.2

Trans Sud 82,954 3,845.9 46.4 17.2

BCT Chemtrade 12,610 124.3 9.9 2.6

Enami 276 10.5 38.0 0.1

Other 3,755 289.7 77.2 0.8

Total 2005 480,893 15,432.1 32.1 100.0

Trans Sud 66,210 2,517.1 38.0 50.4

Codelco 65,103 2,171.5 33.4 49.6

Total 2006 131,313 4,688.6 35.7 100.0

Codelco 72,112 4,373.5 60.6 61.7

Trans Sud 42,028 2,083.5 49.6 29.4

BCT Chemtrade 10,013 625.8 62.5 8.8

Total 2007 124,153 7,082.8 57.0 100.0

Codelco 61,008 11,692.8 191.7 72.7

BCT Chemtrade 17,812 2,986.7 167.7 21.2

Trans Sud 5,001 245.1 49.0 6.0

Wine Industry 92 28.6 310.4 0.1

Total 2008 83,913 14,953.2 178.2 100.0


16

III. Sulfuric Acid Balance Estimations (2009-2015) 3.1 Domestic Balance

As explained in the methodology notes,8 the domestic sulfuric acid balance evaluates four scenarios (Baseline, Maximum Production, Maximum Consumption and Potential). Each is in turn projected over the short, medium

and long-terms. Results are shown on the table below.

Table 10: Domestic Sulfuric Acid Balance, 2009-2015 (KMT)


Description 2009 2010 2011 2012 2013 2014 2015

Baseline Production (1) 5,055 5,385 5,742 6,156 6,221 6,255 6,463

Potential Production (2) 0 0 70 200 200 200 700

Maximum Production (3) 5,055 5,385 5,812 6,356 6,421 6,455 7,163 Baseline Consumption (4) (7,428) (7,625) (7,440) (7,252) (7,083) (6,520) (6,202)

Potential Consumption (5) 0 0 (715) (865) (955) (1,165) (1,170)

Maximum Consumption (6) (7,428) (7,625) (8,155) (8,117) (8,038) (7,685) (7,372) Balance Under Each Scenario

Baseline (1-4) (2,374) (2,241) (1,698) (1,096) (862) (265) 261

Maximum Production (3-4) (2,374) (2,241) (1,628) (896) (662) (65) 961

Maximum Consumption (1-6) (2,374) (2,241) (2,413) (1,961) (1,817) (1,430) (909)

Potential (3-6) (2,374) (2,241) (2,343) (1,761) (1,617) (1,230) (209) Source: Cochilco, based on producer and consumer company reports to March 2009.

3.2 Regional Balance Acid production and consumption behavior details are provided in regional balances under the maximum scenario.

Table 11 shows individual balances for leading consumer regions plus central and southern Chile (i.e., Coquimbo to Los Ríos). Shown for each region are baseline and potential production and consumption plus the resulting balance

(shortfall or surplus).

8 See Section 1.3.

17

Table 11: Regional Sulfuric Acid Balance in Chile - Potential Scenario for 2009-2015 (KMT)

Short-Term Medium-Term Long-Term Regional Scenarios

2009 2010 2011 2012 2013 2014 2015

A) Arica-Parinacota and Tarapacá

Surplus 110 135 135 135 135 135 135

+ Potential Production 0 0 70 140 140 140 140

- (Baseline Consumption) (743) (909) (792) (647) (645) (599) (582)

- (Potential Consumption) 0 0 (70) (140) (140) (140) (140)

(Shortfall Arica/Tarapacá) (633) (774) (657) (512) (510) (464) (447)

B) Antofagasta

Baseline Production 2,150 2,290 2,635 3,030 3,100 3,110 3,210


- (Baseline Consumption) (5,260) (5,130) (5,027) (5,235) (5,007) (4,625) (4,609)


(Shortfall Antofagasta) (3,110) (2,840) (2,947) (2,700) (2,392) (2,100) (1,949)

C) Atacama

Baseline Production 845 845 845 845 845 845 845


- (Baseline Consumption) (946) (1,099) (1,157) (893) (954) (882) (597)


(Shortfall Atacama) (101) (254) (372) (168) (329) (367) (122)

D) Coquimbo-Los Ríos



- (Baseline Consumption) (480) (487) (465) (477) (477) (414) (414)


Surplus 1,470 1,627 1,632 1,618 1,614 1,701 2,309

Source: Cochilco, based on producer and consumer company reports to March 2009.

3.3 Estimated SX-EW Production

To place the sulfuric acid balance in context, the table below shows current estimates for SX-EW copper production, the single-largest sulfuric acid consumer.

Table 12: Expected SX-EW Copper Cathode Production (2009-2015) (KMT)


Description 2009 2010 2011 2012 2013 2014 2015


New Production 216 235 348 390 445 492 478

Estimated Production 2,096 2,154 2,099 2,116 2,048 1,888 1,819 Source: Investment in the Chilean Copper and Gold Mining Sector - Estimations for 2009-2013 (March 2009).

18

IV. The Chilean Sulfuric Acid Market: Estimations Through 2015

This Section discusses factors impacting the Chilean sulfuric acid market through 2015, especially the international context. Scenarios are reviewed in

chronological order. Chart 4 shows the resulting balance for all four scenarios. Chart lines track

baseline and potential cases while columns track the intermediate maximum production and maximum consumption cases. Details are discussed below.

Chart 4: Sulfuric Acid Market Balance By Scenario (2009-2015)

Source: Cochilco.

4.1 Short-Term (2009-2010) The sulfuric acid deficit for 2009 is expected to stand at a record 2.37 million tons,

slightly above the 2.31 million ton posted in 2008. Estimates of a 2.24-million ton shortfall for 2010 point to the market remaining tight over the short term.

Chile has faced a deficit since 2006 due to startup of large hydrometallurgical projects, increased demand from small- and medium-scale miners driven by high copper prices through Q3 2008, and falling smelter production.

Short-term needs should remain high as existing operations increase consumption and the Gaby mine begins to operate at capacity. That said, declining copper prices are still expected to lead to some degree of reduction.

19

Acid consumption in 2010 is expected

to stand at 7.6 million tons, up from the 7.1 million tons used in 2008. To meet the need, domestic production is

expected to rise from 4.8 million tons in 2008 to 5.4 million in 2010, just as shifts in the world market should make more

acid available. The improved supply should stand mining consumers in good stead.

4.2 Medium-Term (2011-2013) This period is noted for the impact of

potential production and consumption projects. Chart 6 shows the baseline shortfall dropping from 2.24 million tons in 2010 to 0.86 million tons in 2013, as baseline consumption begins to decline and

an additional 660,000 TPY are contributed by the new Noracid Plant in Mejillones. Factoring in demand from potential projects results in consumption hitting an all-time peak of 7.91 million tons in 2011. These projects include the Sagasca

expansion (Tarapacá), Sulfolix (Antofagasta), Diego de Almagro and San Antonio Oxides (Atacama), and Tres Valles (Coquimbo).

The potential supply includes a 10 percent boost in Noracid production

plus the output from the new Haldeman plant in Sagasca. This plant, however, will have no actual

market impact since its output is almost entirely earmarked for a planned expansion.

As such, the actual potential shortfall should drop to 1.38 million tons in 2013. Also shown in the chart are maximum

consumption and production expected in the period.

20

4.3 Long-Term (2014-2015) Baseline consumption continues to decline as baseline production

expands. The net result by 2015 should be a 260,000 TPY surplus that would change the face of the market entirely.

However, potential projects such as Codelco Norte leaching areas and Caserones in Antofagasta add 1.1 million tons in new demand to the

baseline profile. Baseline production is boosted by

potential projects and by an eventual Ventanas expansion, should Codelco move to increase Andina concentrate

processing at this smelter. The net effect of potential projects is an acid shortfall on the order of 200,000 TPY, bringing the overall situation closer to equilibrium.

4.4 National Market Balance: Regional Distribution

Regional distribution in an asymmetric market where demand is concentrated in the north and production in the center requires closer examination. Chart 8 shows the national balance and respective regional balances for the scenario

under review, i.e., the impact of adding potential consumption and production projects to existing operations in each region.

The most salient point in Chart 8 below is a decline in the sulfuric acid shortfall expected in Antofagasta, from a 3.11 million ton peak in 2009 to 1.95 million tons in 2015. Given the relevance of this prime mining region, this figure closely correlates with the national shortfall.

Also significant is the stable surplus in central-southern Chile, which jumps forward in 2015 driven by potential increases in acid production at the Ventanas Smelter.

Atacama, for its part, shows a deficit trending to equilibrium as currently significant consumption from the Salvador Division is replaced only partially by

demand from potential projects.

21

Chart 8: National and Regional Sulfuric Acid Market Balances (Potential Scenario, 2009-2015)

Source: Cochilco.

The particular regional distribution of the Chilean sulfuric acid market has a major logistical impact. This has become quite evident in recent years, as major increases in sulfuric acid flows, both domestic and imported, have stretched the

reception, storage and transportation infrastructure to its limits, a situation that is not expected to improve in the short term.

22

V. The World Market Starting in 2007 the world sulfuric acid market was buffeted by sudden, unforeseen changes, including a very tight spot market and unprecedented

high prices. This situation grew especially acute from July to October 2008, then the pendulum swung sharply in the opposite direction.

This Section is solely intended to outline some of the likely facts accounting for this situation; a more in-depth review would required additional data not yet available.

5.1 Overview9 World sulfuric acid production in 2007 stood at a record 200 million tons, then slid

to 196 million tons in 2008. According to estimations, 71 percent is produced directly (60 percent from sulfur,

10 percent from iron pyrites, 1 percent from other sources) while 29 percent is produced indirectly from sulfur gases emitted by base metal smelting. In 2008, 37 million tons of acid were produced by copper smelters, 14 million tons

by zinc-lead smelters, and some 4 million by nickel and other metals smelting. Significantly, the market share of indirect production, which needs to be sold quickly, has grown 6 percent in the past decade.

Leading sulfuric acid consumption are phosphate fertilizers (64%), industry (28%) and mining (copper: 5%, nickel and uranium: 3%).

5.2 Sulfuric Acid, Sulfur and Related Prices

While most metals have posted significant price gains since 2004, this has not impacted sulfuric acid prices, whose performance depends on the price of sulfur, in turn dependent on the price of phosphate fertilizers, its leading market. Diammonium phosphate (DAP) is a highly representative product whose prices

stand as a yardstick for this range of products. Relatively stable phosphate prices through December 2006 underwent a sea

change in 2007, with unprecedented price gains that impacted both sulfur and sulfuric acid prices. The table below compares leading referential prices for sulfuric acid, sulfur, DAP and copper.

9 Based on a presentation made on 1 April 2009 to a CRU event in Santiago by British Sulphur consultant

Joanne Peacock.

23

Table 13: Sulfuric Acid, Sulfur, Phosphate and Copper Price Comparison

Monthly Prices (US$/Ton) Price Index (Dec. 2006=100)

Sulfuric

Acid Sulfur DAP Copper

Sulfuric Acid

Sulfur DAP Copper

Month FOB

Tampa FOB

Vancouver

FOB Middle

East

FOB Tampa

LME Month FOB

Tampa FOB

Vancouver

FOB Middle

East

FOB Tampa

LME

Jun 06 50 56 62 265 7,198 Jun 06 78.9 100.0 119.2 103.1 107.8

Sep 06 55 56 57 260 7,602 Sep 06 87.7 100.0 109.6 101.2 113.9

Dec 06 63 56 52 257 6,676 Dec 06 100.0 100.0 100.0 100.0 100.0

Mar 07 68 65 84 435 6,452 Mar 07 108.8 116.1 161.5 169.3 96.7

Jun 07 72 65 135 440 7,476 Jun 07 114.0 116.1 259.6 171.2 112.0

Jul 07 72 130 174 425 7,974 Jul 07 114.0 232.1 334.6 165.4 119.4

Aug 07 72 140 202 433 7,514 Aug 07 114.0 250.0 388.5 168.5 112.6

Sep 07 72 180 220 436 7,649 Sep 07 114.0 321.4 423.1 169.6 114.6

Oct 07 72 200 223 450 8,008 Oct 07 114.0 357.1 428.8 175.1 120.0

Nov 07 125 200 240 550 6,967 Nov 07 198.2 357.1 461.5 214.0 104.4

Dec 07 125 300 497 610 6,588 Dec 07 198.2 535.7 955.8 237.4 98.7

Jan 08 220 300 504 765 7,061 Jan 08 350.9 535.7 969.2 297.7 105.8

Feb 08 220 450 620 900 7,888 Feb 08 350.9 803.6 1,192.3 350.2 118.2

Mar 08 220 480 666 1,190 8,439 Mar 08 350.9 857.1 1,280.8 463.0 126.4

Apr 08 220 480 666 1,230 8,685 Apr 08 350.9 857.1 1,280.8 478.6 130.1

May 08 253 660 747 1,200 8,383 May 08 403.5 1,178.6 1,436.5 466.9 125.6

Jun 08 253 660 806 1,160 8,261 Jun 08 403.5 1,178.6 1,550.0 451.4 123.7

Jul 08 474 800 804 1,220 8,414 Jul 08 754.4 1,428.6 1,546.2 474.7 126.0

Aug 08 474 800 760 1,130 7,635 Aug 08 754.4 1,428.6 1,461.5 439.7 114.4

Sep 08 452 665 360 890 6,991 Sep 08 719.3 1,187.5 692.3 346.3 104.7

Oct 08 408 180 223 570 4,926 Oct 08 649.1 321.4 428.8 221.8 73.8

Nov 08 408 65 48 570 3,717 Nov 08 649.1 116.1 92.3 221.8 55.7

Dec 08 110 65 53 395 3,072 Dec 08 175.4 116.1 101.9 153.7 46.0

Jan 09 0 48 45 358 3,221 Jan 09 0.0 85.7 86.5 139.3 48.2

Feb 09 0 40 52 371 3,315 Feb 09 0.0 71.4 100.0 144.4 49.7

Source: Cochilco, with data from SULPHUR (sulfuric acid and sulfur), PENTASUL (DAP) and Cochilco

(copper).

Relative to December 2006, DAP prices (FOB Tampa, Gulf of Mexico) in June

2007, December 2007 and June 2008 rose by 1.7, 2.4, and 4.5 times, respectively. Most of the steep rise was driven by unprecedented phosphate demand from

China and India. Both countries are implementing vast agricultural development programs designed to increase food, and most recently, biofuel production. These programs included subsidized fertilizer costs.

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To sulfur producers, this was a boon. However, Canada and Russia, the world’s

largest sulfur producers and exporters, face logistical issues in moving their vast output from the continental interior to ports of shipment. This is not the case for Middle Eastern oil producers. Their sulfur is obtained in coastal zones, which

enables them to fill orders without delay. These producers, and later their Canadian counterparts, drove sulfur prices up.

Relative to December 2006, Middle Eastern sulfur prices in June 2007, December 2007 and June 2008 rose 2.5, 9.5, and 4.5 times, respectively. Canadian producers reacted in H2 2007. While as of June 2007 their prices had only risen 16 percent, by December 2007 they were 5.3 times higher than the year before

and by June 2008 they were almost 12 times the December 2006 price. As to sulfuric acid, Tampa prices traditionally track the price of Canadian sulfur.

However, in this particular sulfur market, acid prices lagged behind the shifts in the price of its key input. As of June 2007, prices had risen 14 percent, similar to sulfur. By December 2007 they had risen 2 times, as compared to 5.3 times for

Canadian sulfur. By June 2008 the price was 4 times higher than in December 2006, one third of the rise in the price of sulfur. Lower acid prices were due to indirect acid producers, including smelters that

cranked up production to take advantage of high base metal prices. In April 2008 phosphate fertilizer prices hit a record US$1,230/Ton FOB Tampa.

China and India, reeling under the impact of subsidies on the public purse, called a halt. Demand slackened and prices declined. However, sulfur and acid prices kept on rising until peaking in July 2008.

In September 2008 the slow decline turned into a sharp plunge, as the onset of the global financial crisis made oil prices plummet, taking Middle Eastern sulfur

prices with them. The sharp decline in prices calls for a reexamination of sulfur market fundamentals after the serious distortions of the past two years. These point to a

market with a structural surplus, as sulfur comes from the desulfuration process oil and/or natural gas must undergo prior to use as fuel. Most large known oil and gas reserves worldwide are high in sulfur. As such, given its logistical position,

Middle Eastern sulfur is likely to continue to play a key market and pricing role. In addition, oil prices under US$100 a barrel might conceivably discourage

biodiesel production at least in the short term, in turn reducing phosphate fertilizer demand and impacting the sulfur and sulfuric acid markets.

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That said, industrialized countries are likely to continue non-conventional

renewable energy development, including biofuels, for political reasons connected with reducing dependence on foreign oil. If so, the need for higher agricultural productivity will continue to rise, driving demand for phosphates and

other fertilizers. Other than the vagaries of the global economic and financial crisis, the monthly

price comparison in Table 13 shows no special correlation between the copper market and the specifics of the sulfur market. 5.3 The Foreign Sulfuric Acid Supply Unprecedented sulfur and sulfuric acid demand had a direct impact on availability. Spot market shortages became acute, transport vessels ran short

and handling capacity at marine terminals was taxed to the limit. This situation caught the Chilean market, and especially the mining industry, at

peak dependence on foreign supplies. While most of the 2.3 million tons in imports came in under existing contracts, Table 5 shows that at least 20 percent were bought at prices near the peak for

each period. In other words, many consumers had to resort to the spot market under highly

adverse conditions. While Chile still labors under a critical shortage, expected changes in the world

market should give buyers some respite. 5.4 The Peruvian Supply Over the past three years, sulfuric acid imports from Peru have grown apace, from 89,000 TPY in 2006 to 499,000 TPY in 2007 and 683,000 TPY in 2008.10

This merits a review of available sulfuric acid supplies from Peru. However, since it lacks direct access to Peruvian producer and consumer data, Cochilco does not estimate a joint balance for the Chile-Peru region. As such, this review is

based only on available global reports. Peruvian sulfuric acid comes from copper, zinc and lead smelters implementing

new sulfur gas abatement programs. Sulfuric acid production has been rising since 2006 and stands now at some 1.4 million TPY.

10 See Table 6.2, Sulfuric Acid Imports by Country of Origin.

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Peruvian capacity is expected to rise to some 2.2 million TPY in 2010, followed by an additional 20 percent longer-term increase leaving annual production at some 2.6 million TPY.

In Peru, as in Chile, sulfuric acid demand is mostly driven by copper leaching operations. While current consumption is an estimated 800,000 TPY, this is

expected to rise to some 1.4 million TPY after the Tía María facility in southern Peru comes on stream in about three years. Peru projects under review –which may or may not see the light of day- could

required an additional 900,000 TPY starting in 2012. Peruvian supplies available for export could reach some 1.2 million TPY in 2010,

then slide to 700,000 TPY as domestic consumption cranks up. However, if potential projects are factored in, Peru would be unable to match

the steep rise in consumption. Under this scenario, Peruvian supplies available for export should settle at not more than 300,000 TPY within five years.

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VI. Conclusions Our review of the Chilean sulfuric acid market suggests the following conclusions:

6.1 Sulfuric Acid and Copper Production SX-EW copper cathode production is expected to reach 2 million TPY in 2008,

peak at 2.15 million TPY in 2010, then begin to slide unless new major projects come on stream. Significantly, the consumption rate (i.e., acid required to produce a ton of

copper cathodes) has expanded from 2.86 tons in 2004 to 3.45 in 2008 and could reach 4.0 by 2015.

6.2 Acid Supply and Prices in 2008 As noted in previous reports, a severe sulfuric acid shortfall was anticipated for

2008 as a result of rising demand from large-scale leaching facilities and smaller operations capitalizing on high copper prices. Increased demand necessitated imports of over 2.3 million tons, a twofold and

fourfold increase over 2007 and 2006, respectively. As shown on Table 13, these imports were made under adverse conditions, including a tight world sulfur and sulfuric acid market in H2 2007 and an all-time price peak in mid-2008.

This scenario had a serious operational impact on the Chilean market and severely taxed its logistics infrastructure. Higher acid prices, coupled with rising

consumption, made costs soar. 6.3 Weaknesses in the Domestic Acid Supply While acid consumption has exploded, domestic production has fallen by 200,000 TPY over the 5 million TPY peak posted in 2005. Although production at the Chagres Smelter has increased, this has not sufficed to offset steep declines

in Codelco and Altonorte production. This condition should revert starting this year, when a return to 2005 levels is

expected. This should be followed in short order by increases at Altonorte and Chagres, then Codelco in the medium term.

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6.4 New Supply From Sulfur Plants Deferment of the Codelco Smelter-Refinery Project opened up the field to sulfur-burning options, with two major projects now underway. Some smaller-scale

initiatives failed to come to fruition. Noracid -an affiliate of the Ultramar and Belfi groups, also active in Puerto

Mejillones- is building a 720,000 TPY plant in this port, with startup slated for early 2011. This facility, intended to serve a group of leading Antofagasta mining companies, will leverage the synergies offered by their joint terminal, acid storage and loading and offloading infrastructure. It will also generate electricity

to be sold through the SING power grid. Haldeman, for its part, is planning a second plant similar to its 140,000 TPY sulfur

burning plant in Sagasca, Tarapacá. As this facility is intended to serve a planned company expansion, it should have no significant market impact if built.

6.5 Chilean Market Prospects Through 2015 Under a baseline scenario, the Chilean sulfuric acid shortfall should tend to decrease gradually, level off in 2014, then turn around completely in 2015.

However, new consumption from potential projects could vastly exceed production. In this scenario the market would continue to show a deficit, albeit

much less strongly than at present. Leaching projects most likely to materialize include Sulfolix (El Abra), Tres Valles

(Vale), and new areas at Codelco Norte and Caserones. Reasonably likely projects include Cerro Dominador’s Diego de Almagro and Codelco Salvador’s San Antonio Oxides. Prospects under exploration which might materialize after

the 2015 cutoff date were not considered in this study. New production projects are limited to a 10-percent capacity boost by Noracid and to Haldeman’s project, which should have no real market impact. Also,

should Codelco choose to go that route, the Ventanas Smelter might be expanded to process more Andina concentrates starting in 2015.

Although Peruvian acid is plentiful in the short term, vigorous copper mining growth patterned after Chile should significantly expand SX-EW operations.

As such, the most likely prospect facing the Chilean sulfuric acid market is continued, albeit less pronounced shortage. While Chile will continue to rely on imports, Peruvian supplies should take a back seat to central Chile sources and

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to the Antofagasta sulfur plant, which should go some way to relieving the

chronic shortage in this region. 6.6 Price Prospects Sulfuric acid prices will continue to be dictated by phosphate fertilizer prices, a determinant of sulfur prices. Although fertilizer demand has plunged for now, this

is regarded as no more than a short-term reaction to inflated prices. Analysts will continue to watch agricultural policy changes in China and India. Should these countries resume plans to stimulate agricultural productivity for

both food and biofuel production purposes, prices will be sure to rebound. Analysts will also keep an eye on oil prices, phosphate fertilizer use and biofuel

production. Given the role of Middle Eastern producers in dictating sulfur prices, as long as oil remains under US$100 a barrel -a price level that discourages biofuel production- the sulfur market’s structural surplus should help keep prices

low. Conversely, should oil prices make substitution attractive, sulfur prices might rise along with demand for fertilizer production, in turn pushing biofuel costs up.

Also significant is the growing role of indirect sulfuric acid production from copper and other smelters. During weak demand cycles, smelter acid may well

supplant part of direct production, keeping both sulfur and sulfuric acid prices down.

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A Cochilco Research Department Publication Prepared By

Vicente Pérez Vidal

April 2009

chilean copper commission research department · projects include cerro dominador’s diego de...

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