South American demand for asphalt is expected to increase in 2023 as the Ukraine conflict continues and planned elections in the Southern Cone lift pre-electoral infrastructure spending.
The Ukraine conflict opened up room for liquid asphalt imports to Latin America following restrictions on Russian products. Argentina, Uruguay and Paraguay will continue to demand more asphalt from the Mediterranean and US Gulf Coast (USGC) next year ahead of elections.
South American imports increased by 80pc in 2022 from 2021, reaching 331,000t from 1 January-20 December, according to Vortexa. Argentina and Chile were the top two destinations in the region, with 56pc and 35pc of total purchases, respectively.
Most asphalt originated in the US, which accounted for 38pc of market share. Spain was the second most popular origin, with 26pc of South American imports. Substantial amounts of asphalt also came from Italy, Turkey and Greece.
Market participants agree that the Mediterranean's importance as an asphalt origin to the region will continue increasing in 2023. Europe's economy, battered by high energy prices prompted by the conflict in Ukraine, is not expected to recover next year from its slump, leading to reduced — or at best stable — asphalt consumption. Costs for construction machinery and utilities for heating asphalt plants are increasing and have led construction companies to reduce project work across much of Europe. This has pressured asphalt demand, creating some oversupply in the market, especially from central and eastern Mediterranean export points, such as Italy, Greece and Turkey.
Inflation is also running at multi-decade highs, with global central banks led by the US Federal Reserve pursuing the most aggressive monetary tightening in generations, and a recession is now increasingly expected in the US and Europe, according to economists from Deutsche Bank.
Politics in South America should drive demand for asphalt imports as well.
Argentina will have general elections to decide its next president in August, which typically prompts an increase in infrastructure work as ruling party candidates seek to drum up support with more spending, which will likely boost the country's demand for asphalt imports. The country imported around 15,000t/month in 2022, according to Vortexa data.
Argentina produces around 10pc of its domestic asphalt demand. This supply is likely to decrease in the following years as the exploration of the Vaca Muerta oil reserve advances because that crude does not produce as much asphalt.
Paraguay will also have presidential elections next year, which is expected to boost the country's demand for asphalt.The country uses around 150,000t/yr and does not have any production capacity. In 2021, South America imported around 500,000t of both liquid and solid asphalt, 9pc of which headed to Paraguay from Russia, according to Argus consulting data.
Uruguay also began to import more liquid asphalt in 2022, after the start of the Ukraine conflict. The last time Uruguay imported liquid asphalt was in October 2020, when the country brought in 3,900t. It imported around 16,400t in 2022, according to data from Vortexa.
Brazil
In Brazil, state-owned Petrobras is still on track to divest $10bn-$20bn worth of refinery assets in 2023-2027, although president-elect Luiz Inacio Lula da Silva's incoming administration could make changes to that plan.
Should Petrobras persist in its plan to sell its refineries, its share of the asphalt market in the region is expected to decline from nearly 100pc in 2021 to around 30pc.
The state-controlled company also plans to increase its spending by 15pc to $78bn and focus on the exploration of deep and ultra-deep waters in Brazil. Oil from ultra-deep waters is lighter than other crudes and reduces heavier product production, such as asphalt.
Brazilian private companies also started to import liquid asphalt earlier this year. In the past, Petrobras was solely responsible for Brazil's rare liquid asphalt imports. Prior to 2022, the country had not imported any waterborne asphalt since 2016.
Before the Ukraine conflict, most of Brazil's asphalt imports were polymer-modified asphalt (PMA). The country imported 92,100t of PMA, mostly from Russia, from 2018-2021. But the war in Ukraine has reduced both demand for and supply of the Russian product, with only 24,700t imported in the first half of 2022, most negotiated before the conflict. In 2022, Brazilian imports accounted for almost 2pc of the South American region's total imports and ranked among the top four destinations in South America.
Market participants see even more space for importers in Brazil's north and northeast regions in 2023. Asphalt supply in those regions may be insufficient to meet demand because refiners are prioritizing bunker production, as prices for those products are higher.
