Why We Should Worry About a Sulfur Squeeze

To our Iran War worries about oil, urea, and natural gas, we can add a “sulfur squeeze” and “LNG cliff.”

Sadly, it could all relate to NVidia.

A Sulfur Squeeze and LNG Cliff

Our story again starts with oil. With sulfur a byproduct, the oil producing nations like the UAE, Saudi Arabia, and Qatar feed the world’s producers of sulfuric acid. And they, in turn, are needed for commodities that range from copper and phosphate fertilizer to cleaning products and batteries.

In addition, sulfuric acid helps to eliminate microchip contaminants. And, furthermore, it assists the copper and cobalt extraction that is necessary for chip components.

As a result, according to a Morgan Stanley “Tech Bytes” report, Taiwan Semiconductor Manufacturing Company (TSMC), manufacturer of 90 percent of all advanced chips, could experience a sulfur squeeze. Because TSMC fabricates the chips designed by NVidia, a sulfur squeeze could ripple through the entire AI ecosystem. Then, compounding the impact on chip production, their power supply from Taiwan could hit a cliff because of the War’s impact on LNG.

Our Bottom Line: Supply Shocks

Similar to what we saw for urea’s supply chain, sulfur is also experiencing a supply shock. Defined as an unexpected external hit to the production side of a market, a supply shock shifts the supply curve to the left. As a result, quantity sinks and prices rise.

Necessary for countless commodities, the sulfuric acid supply chain returns us to the Strait of Hormuz and the difficulty of minimizing a supply squeeze. While Canada, for example,  has been cited as an alternative, a pivot would be limited by its production constraints, logistical bottlenecks, and the demand it currently satisfies.

Where are we? Again, the Strait of Hormuz has revealed one of those little-known commodities that affect us everywhere. It could even ripple to NVidia’s Open Claw.

My sources and more: I first thought of looking at sulfuric acid during this Odd Lots podcast. From there Politico had much more detail as did Investing.com.