News
03/01/25
Viewpoint: India bitumen demand growth prospects mixed
Singapore, 3 January (Argus) — Prospects of India's 2025 bitumen consumption
growth are mixed, as state governments' delayed disbursement of project funds
are likely to persist and weigh on demand while the many incomplete projects
could boost consumption. India is a net bitumen importer and the biggest
consumer of Middle East origin bitumen, especially from Iran. India's bitumen
consumption had touched record highs in 2022 and 2023 and surpassed 8mn t/yr,
despite prolonged payment delays, as importers had offered atypically longer
credit terms to road contractors. All importers and traders are "struggling with
payment recovery", an Indian importer said. Many contractors are demanding
credit as several state governments have not released funds, the importer added.
"Demand is not bad, but it really depends on funding. Demand won't increase by a
lot [next year], but it should be quite stable [to 2024]." High inventory
pressure forced importers to offer atypically bigger discounts to liquidate
cargoes, which squeezed their profit margins, especially as import costs
increased given a supply crunch in Iran. But there is no dearth of projects as
many were delayed because of funding constrains, importers said. Some
state-controlled refiners anticipate consumption to grow next year, albeit
marginally. Refiners were previously forced to offer larger discounts against
listed values to attract more customers, which weighed on their profit margins
this year. This could continue into 2025 would ultimately pressure refiners to
reduce bitumen output and increase production of other higher valued oil
products. Indian refiners typically produce around 5mn t/yr, which accounts for
around 55-60pc of total bitumen consumption. "We are only expecting a 3-4pc
increase in demand on year as no new major road projects have been announced, so
it is hard to see a larger growth," a source close to a state-refiner said. "But
imports will increase if we reduce production, given growth will still be in
[the] positive. So next year will not be that fantastic in comparison and there
would not be any capacity augmentation for bitumen." This indicates that the
central government's expectation that Indian bitumen consumption will rise by
14pc on the year to 10mn t during the ongoing financial year ending March 2025
could be at risk. Limited Middle East exports Vacuum bottom feedstock supply has
been erratic in Iran, and feedstock transportation from national refineries to
private bitumen producers has also been delayed this year, which market
participants expect to persist in the coming year. This will limit feedstock
availability and in turn bitumen output, increasing export cost especially for
higher priced VG40 grade, which is imported by India. Tight supply has also
increased congestions at the Bandar Abbas port, forcing vessel owners and
importers to incur higher demurrage, increasing costs and weighing on import
appetite. There are also fears that the new Trump administration may impose more
sanctions and other political measures on Iran next year, further clouding the
export outlook. Iranian central bank's recent announcement to phase out the Nima
foreign exchange platform has increased uncertainty on the rials' value against
the US dollar as importers and exporters will now have to trade based on
mutually agreed exchange rates, with the free market rate still depressed.
Meanwhile, Baghdad's recent directive to stop oil and other oil products from
entering Iran, unless the exports are licensed by state-owned Somo, could also
limit drummed bitumen exports as bitumen producers do not typically possess a
Somo licence. Iraqi drums are generally transshipped out of Bandar Abbas. The
recent upgrade of Bahrain's state-owned Sitra refinery to 380,000 b/d from
267,000 b/d will primarily boost middle distillate and naphtha output, weighing
on bitumen production. Middle East cargoes are also typically exported to
southeast and east Asia during low demand periods in India. Seaborne prices in
Asia rose to multi-year highs in 2022 and import appetite for relatively cheaper
Middle East-origin bulk cargoes increased, which continued in 2023. Appetite
from Asia this year was mostly from China and Vietnam, as other buyers preferred
Asia-origin cargoes because of compatible specifications and proximity. "The
Middle East-Asia arbitrage is closed, and we will see very little-to-no cargoes
from the UAE to Asia," a southeast Asia-based trader said. This is because
Middle East-origin cargo cfr prices are not likely to be competitive to Asian
cargoes, with supply and loading constraints in Iran adding to the
uncertainties. By Maedeh Mazinani, Sathya Narayanan and Chloe Choo Send comments
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