ajm101 (38.97)

A new investing theme for me (Sulfur) and a new position (MMLP)

April 25, 2008 – Comments (0) | RELATED TICKERS: MMLP

I became aware of this surprising investing theme when I read a Lehman report on FCX.  Did you know that the price of sulfuric acid has tripled in the past six months?  I didn't.

The reason is that sulfuric acid reacts with calcium phosphate rock to produce phosphoric acid, which is a raw material for fertilizer.  If you look at the tickers for POT, AGU, MOS, YARIY.PK, BG, or CMP you will see what kind of strength the market is discounting for fertilizer.  If you prefer, you can believe your own eyes with reports of grain shortages around the world.

Sulfuric acid is also used to leach copper/gold/silver from poryphry ore.  Some of those ores are sulfide rich and are self sufficient in sulfuric acid, but not all of them are.  With global demand for copper so high this will be another source of pressure on sulfuric acid prices.

Finally, sulfuric acid is used in refining oil.  I understand oil demand is pretty high, too.

So who sells sulfuric acid?  This was surprisingly difficult to figure out.  I found the US Geological Survey report on sulfure for 2008 very useful: http://minerals.usgs.gov/minerals/pubs/commodity/sulfur/mcs-2008-sulfu.pdf

Most of domestic production is the result of oil, gas, and coking coal processing.

From there I had to do internet digging, and the only name I came up with was Martin Midstream LP (MMLP).  They primarily operate gas pipelines, and I believe they recover sulfur from treating the gas and use that in the manufacture of sulfuric acid.  Their sulfur business is about 1/5 of their revenue, but the margins are good enough that it is about 1/3 of their profit.

I like the company so far, and have established a small personal position and added it to my CAPS portfolio.  They trade at 21 times trailing earnings, .65 times sales, yield more than 8%, and there has been a respectable amount of insider buying over the past 6 months.