China's dominance in lithium and cobalt refining masks a deeper vulnerability: a sulphur supply chain concentrated in the Gulf and exposed to Hormuz disruption
The global response to the blockade of the Strait of Hormuz has been overwhelmingly framed around oil and liquefied natural gas. However, a less visible but equally significant disruption is occurring in the upstream portion of the world's critical mineral supply chains. Sulphuric acid used in lithium chemical refinement and cobalt oxide leaching is produced from sulphur, a byproduct of Gulf hydrocarbon refining. As the world's dominant processor of both minerals, China is particularly exposed to disruptions in this supply chain. Yet its vulnerability extends beyond dependence on Gulf sulphur. Beijing is simultaneously a victim of the disruption and a contributor to it, owing to its own restrictions on sulphuric acid exports.
The Strait of Hormuz accounts for roughly half of the world's seaborne sulphur trade, originating from Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait. Gulf sulphur loadings fell to nearly 400,000 tonnes in March alone, a 74.5 percent year-on-year decline since the Strait's closure in late February 2026. This is not a disruption of marginal supply. One of the world's most industrially critical commodity chains is undergoing a structural crisis.
Gulf sulphur loadings fell to nearly 400,000 tonnes in March alone, a 74.5 percent year-on-year decline since the Strait's closure in late February 2026. This is not a disruption of marginal supply.
In the middle of that chain is China. Its lithium chemical converters transform imported spodumene concentrate (primarily from Australia and Zimbabwe) into battery-grade lithium hydroxide and lithium carbonate — key intermediates for EV cathode chemistry — through roasting with sulphuric acid. An additional degree of risk is evident in China's cobalt supply chain. The DRC's oxide leaching facilities, such as those operated by CMOC, rely on Gulf sulphur imported through the port of Dar es Salaam and are the source of the cobalt hydroxide feedstock that arrives at Chinese refineries.
This fundamental constraint has been termed the "byproduct trap". There is no independent mining or production of sulphur. Tehran's recent decision to impose a blockade on the Strait of Hormuz has disrupted the supply of this hydrocarbon by-product. No amount of demand from Shenzhen's battery makers can restore sulphur volumes if those refineries shut down.
China's critical minerals processing sector has experienced a twofold cost shock owing to the blockade. As spodumene prices rose into 2026, Chinese lithium converters were already running on narrow margins. These narrow margins stemmed from the global lithium oversupply that had persisted since late 2022, which drove lithium carbonate and hydroxide prices to multi-year lows and compressed converter margins to near break-even levels. As LNG fuels the energy-intensive roasting kilns used to transform spodumene into battery-grade lithium compounds, converters now face simultaneous increases in the cost of LNG and sulphuric acid. Rather than counteracting each other, the two disruptions intensify each other. Given that China accounts for around 80 percent of global capacity for refining lithium chemicals, any persistent pressure on Chinese converters will have a disproportionate impact on global lithium supplies. Mid-tier converters are already reporting output reductions of about 10 percent, as many plants hold only one to two months' worth of sulphur inventories.
The damage to cobalt is upstream rather than domestic. As of 3 March 2026, spot sulphur prices at Dar es Salaam, the main import hub for the Central African Copperbelt, were estimated at US$615–630 per tonne FCA (free carrier). Delivered sulphur prices at Kolwezi stand at US$ 900 per tonne DAP, while trucking costs from Dar es Salaam to Kolwezi in the DRC amount to approximately US$ 280 per tonne. This places indicated sulphuric acid costs at nearly US$ 300 per tonne at standard 3:1 conversion ratios, substantially above pre-war regional averages. The economics of oxide leaching at the mine level are severely strained under such input costs, threatening the cobalt hydroxide feedstock pipeline on which Chinese refineries rely.
China's decision to prohibit sulphuric acid exports from 1 May 2026 — justified domestically on grounds of food security — has exacerbated both pressures by removing a crucial relief valve for third-party buyers in Brazil and Southeast Asia who had turned to Chinese supply in place of Gulf cargoes. China is the world's largest exporter of sulphuric acid, shipping approximately 4.6 million metric tonnes in 2025. According to S&P Global CERA analysts, the complete withdrawal of that volume from international markets has been sufficient to drive the market into a considerable deficit. In doing so, China has unintentionally intensified the global pricing spiral that is driving up the cost of its own upstream inputs.
The sulphur shock's ramifications extend far beyond China's industrial sector. The NMC (nickel-manganese-cobalt) cathode chemistry used in most EV batteries worldwide depends on battery-grade lithium and cobalt, both of which rely on sulphuric acid during extraction and refining. Rising sulphuric acid prices and declining mine-level output are directly bearing on worldwide EV production costs and delivery schedules, affecting automakers and consumers across every major economy.
According to UNCTAD's March 2026 brief, the sulphur-driven input cost shock will fall disproportionately on mineral-dependent economies in Sub-Saharan Africa and Southeast Asia, many of which are already under significant financial strain.
The extent of this transmission is evident in the copper market. A 150,000-tonne refined copper shortfall had already been forecast by the International Copper Study Group for 2026, reversing a 209,000-tonne surplus. The worst-case shortfall, according to JP Morgan's modelling, stands at 330,000 tonnes, which would be the first structural copper shortage since 2009. Crucially, both figures are likely to be revised upward once sulphuric acid-driven mine curtailments feed into production statistics, as both projections were made before this shock was absorbed.
This crisis has revealed a significant planning blind spot. Before the blockade, energy transition risk assessments had largely overlooked the sulphur supply chain's reliance on Gulf hydrocarbon refining and its central role in processing critical minerals. According to UNCTAD's March 2026 brief, the sulphur-driven input cost shock will fall disproportionately on mineral-dependent economies in Sub-Saharan Africa and Southeast Asia, many of which are already under significant financial strain.
The Hormuz crisis has made clear that refining capacity is only as resilient as the supply chains feeding it. The sulphur-lithium-cobalt nexus demonstrates how China's dominance in critical mineral refining—long viewed as a source of geopolitical power—can become a structural liability when upstream inputs are disrupted at a maritime chokepoint.
The sulphur-lithium-cobalt nexus demonstrates how China's dominance in critical mineral refining—long viewed as a source of geopolitical power—can become a structural liability when upstream inputs are disrupted at a maritime chokepoint.
The policy responses required are no longer matters of long-term planning. Building strategic reserves of key industrial reagents, investing in alternative mineral processing technologies that do not rely on sulphuric acid, and mapping chemical input dependencies across critical mineral supply chains have become immediate commercial and industrial priorities. The fundamental constraint, as the West Point Payne Institute has observed, is that sulphur supply is determined by hydrocarbon refining and smelting operations rather than by downstream demand. When the reagent itself is unavailable, no level of investment or government intervention can substitute for it in the short term.
Months into the blockade, it is increasingly clear that the consequences will not be temporary. The global EV battery supply chain faces the prospect of a structural repricing that could persist well into the next decade, with cost implications for every economy that has built its decarbonisation strategy around battery-powered transport.
Veer Puri is a Research Assistant with the Centre for New Economic Diplomacy at the Observer Research Foundation.
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Veer Puri is a Research Assistant with ORF’s Centre for New Economic Diplomacy. At ORF, his research focuses on the Blue Economy and connectivity, with particular ...
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