[SMM Analysis] Sulfur Special Series - Supply: Middle East

Currently, the global sulfur industry landscape is resource-driven, with supply highly concentrated. The Middle East has become the "heart" of global sulfur supply, a pattern shaped by the combined effects of geological endowment, market shifts, and national strategies.

I. Industrial Foundation: Resource Supply

The foundation of the Middle East's sulfur industry is built on unique geological endowment and the super-large-scale industrial systems established by state capital.

1. Geological Endowment: Tethyan Domain

Globally, high-sulfur oil and gas resources are concentrated in the Tethyan tectonic belt spanning the Middle East. This region features an optimal combination of high-quality source rocks, carbonate reservoirs, and critical evaporite cap rocks. Through thermochemical sulfate reduction, it has formed the world's richest high-sulfur natural gas reservoirs, providing a resource base for sulfur recovery.

2. Industrial Amplification: Industrialized Operations by National Giants

Resources are transformed into commercial strength by national oil giants represented by Saudi Aramco and the UAE's Abu Dhabi National Oil Company (ADNOC). They invest in building the world's most advanced integrated natural gas processing and refining networks, recovering sulfur on a large scale via the Claus process (with over 95% recovery rate). This gives their sulfur industry typical oligopolistic characteristics, with a highly concentrated market.

· Saudi Aramco: As the world's largest supplier, its sulfur designed capacity exceeds 6 million mt/year, with production around 4.5 million mt in 2024. It adopts an integrated "resource-refining-chemicals" strategy, prioritizing sulfur for the domestic industry chain.

· ADNOC: A core growth driver, with existing and under-construction capacity of about 3.5 million mt/year, and plans to add millions of tons of capacity by 2027.

· Other Key Exporters: Qatar, Kuwait, Iran, etc., together with Saudi Arabia and the UAE, form the core supply cluster in the Middle East.

II. Landscape Reshaping and Pricing Power: From "Buffer Zone" Fracture to "Unipolar System" Establishment

The Middle East's current pivotal position and pricing power stem from its sufficient spare capacity and expansion potential to fill the void after the original global supply balance was broken. In terms of actual export scale, Middle Eastern countries' sulfur exports reached 4-5 million mt in 2024, accounting for about 20-25% of the global trade market size.

1. Global Supply Balance Broken, Middle East Has Spare Capacity and Potential

Before 2025, the Russia-Kazakhstan-Turkmenistan export belt served as an important "buffer valve" and stable supply source. In terms of global sulfur export scale, Kazakhstan exported over 5 million mt of sulfur in 2024, making it the single largest sulfur exporting country globally, holding over 20% of the global sulfur trade share. Additionally, before 2021, Russia's annual sulfur exports ranged between 3 million and 4 million mt, accounting for 15%-20% of global sulfur trade.

However, affected by the Russia-Ukraine war, Russia has shifted from a net exporter to a net importer. In October 2025, Russia made its first import, purchasing 35,000 mt of sulfur from abroad at a price of $390 per mt. This marked Russia's first large-scale sulfur import in many years, signaling the end of its era of sulfur self-sufficiency and causing the collapse of its traditional supply chains in Europe and the Black Sea region. It is estimated that Russia will need to import an additional 1 million mt of sulfur annually to cover the domestic supply gap.

Kazakhstan's main export destinations include Morocco, Israel, Egypt, Tunisia, South Africa, Argentina, China, Brazil, and Russia, among others. Over the past decade, Kazakhstan's average annual exports reached 3.8 million mt. However, due to factors such as inventory depletion, geopolitical issues, and changes in global demand, the China Sulfuric Acid Association predicts that Kazakhstan's sulfur exports will show a declining trend in the next three years, with shifts in market flows.

Currently, amid a fundamental gap in the global supply-demand structure, the Middle East possesses sufficient surplus capacity and expansion potential to fill this void. The Middle East has become the only region capable of large-scale, stable output. It has transitioned from a "supplier" to a "price setter."

2. Core Pricing Platform

QatarEnergy's monthly spot tender price has become a benchmark for the global spot market. Saudi Aramco's Official Selling Price (OSP) serves as the benchmark for long-term contracts. By controlling the timing and magnitude of these key price announcements, Middle Eastern producers directly guide global market expectations.

Strategic Sales and Regional Allocation: Trade strategies are deeply embedded in national strategy: (1) securing baseline demand by locking in strategic customers such as Morocco's OCP and India through long-term contracts; (2) flexibly allocating surplus spot resources dynamically between Asia (China, India, Indonesia) and the Mediterranean/South America (Morocco, Brazil) to maximize profits.

3. Under the New Unipolar System, the Global Sulfur Market Has Formed Clear Role Division

Heart (Pricing and Supply Center): Middle East.

Gravitational Binary Stars (Consumption and Price Validation Centers): Morocco (OCP) acts as the "low-price zone," absorbing large volumes to support its phosphate fertilizer empire; Brazil serves as the "high-price zone," supporting the market ceiling with high-price purchases.

Digestion and Circulation: China, India, Indonesia. Among these, the rigid demand and high-price absorption capacity generated by Indonesia's HPAL nickel smelting projects form a "rigid base" supporting high prices. In the first 11 months of 2025, Indonesia's sulfur imports surged by over 40% YoY to 4.7926 million mt, with the main sources being Saudi Arabia, Qatar, and the UAE.

III. Current Challenges and Future Outlook

1. Current Market Characteristics: High Prices and Game Theory

Under oligopolistic pricing, the current market exhibits a game-like state of "firm high prices but sluggish spot transactions." In Q1 2026, Middle East FOB spot offers were in the range of $516-525/mt. However, major consumers such as China remained cautious in procurement due to difficulties in bearing cost pressures, resulting in high port inventories and showing characteristics of "passive price-following." This indicates that while pricing power lies with the Middle East, high prices have begun to suppress demand and trigger market resistance.

2. Short-Term Outlook: Tight Balance Continues, Fluctuating at Highs

In H1 2026, due to difficulties in restoring Russian supply and sustained demand support from regions like Indonesia, the sulfur market is expected to maintain a tight supply-demand balance, with prices fluctuating at high levels. New Middle East capacity (e.g., projects in Kuwait and Saudi Arabia) will be gradually released starting in 2026, but the peak of large-scale volume increase is expected in 2027.

3. Long-Term Trends: Industry Chain Pressure

In the medium and long term, the Middle East will further consolidate its supply share and pricing power through continuous capacity expansion. This will impose long-term strategic cost pressure on global downstream industries such as phosphate fertiliser and new energy, forcing consumer countries to seek supply chain diversification (e.g., developing smelting acid and phosphogypsum-based acid production). Sulfur has become a key strategic commodity influencing global agriculture and energy transition.