The Asia-Pacific bitumen market could face a challenging start to 2024, as continued government funding issues in a sluggish macroeconomic environment weigh on consumption.
Governments that diverted funds to boost flagging economies stalled by the coronavirus pandemic and to tackle heightened levels of inflation now find themselves cash-strapped, and are hard-pressed to provide steady funding to infrastructure projects.
These prolonged funding and cash flow issues are likely to persist in the first half of 2024, potentially putting a damper on bitumen consumption in the Chinese and southeast Asian markets.
From a supply perspective, volatility in the upstream crude sector has contributed to heightened costing uncertainties.
The six-month easing of sanctions on Venezuela's oil sector could spark increased competition for heavy sour Merey crude, which is known for its high bitumen yields, leading to reduced supplies available for independent Chinese refiners.
But not all market participants in China are concerned about potentially higher feedstock costs. "Given that this is not a permanent lifting of sanctions, there are still risks associated with importing Venezuelan crude and not all refiners will be quick to take the plunge," a Chinese trader told Argus.
Economic woes in China
The demand outlook in China remains downbeat, because of concerns about the country's economic growth prospects and crisis in the property sector.
Ratings agency Moody cut its outlook for Chinese sovereign bonds to negative in early December, its first outlook downgrade for China since 2017.
"There is some correlation between the health of the real estate sector and infrastructure developments," another Chinese trader said, explaining that the implementation of measures to support debt-laden local governments and a struggling property sector could mean less funds available for infrastructure development.
Exports from south China could gain momentum in the years ahead, with independent refiner Chambroad having ramped up production at its newly launched bitumen plant in the south Chinese island of Hainan earlier in 2023.
Funding issues persist in southeast Asia
Some market participants expect demand in the southeast market to be stable, while others expect it to be weaker, given persistent funding issues.
Indonesian importers expect demand to be weaker in 2024 than 2023, as infrastructure budgets are likely to be cut because of the upcoming federal election and given that no new major road projects are likely to be released in the near term.
Vietnamese importers expect demand to be stable as some multi-year road projects continue and some works from 2023 have spilt over into 2024, but many deem a year-on-year jump in consumption unlikely.
The Vietnamese economy has not been strong, while bitumen demand was around 750,000-850,000 t/yr in 2023, with the same expected for 2024, an importer said.
Malaysian consumption is likely to be lower in 2024, but mostly because of an expected cut in fuel subsidies, especially for gasoil — which is widely consumed by premix plants, making bitumen more expensive for road contractors, a source close to a refiner said.
Peninsular Malaysia consumes around 500,000-600,000 t/yr typically, with demand in 2023 in line with that estimate but in 2024 presumed to be lower as no new major projects have been announced, a Malaysian trader said.
Middle East exports to stay strong
Bitumen exports from major exporter Iran are likely to reach fresh highs during the April 2023-March 2024 fiscal year. Most exporters expect seaborne demand to pick up in the coming months.
Consumption in India, a major importer of Middle East cargoes, is likely to be mostly unchanged on the year in 2024. India's consumption was around 8.84mn t during 2023, a record high, according to oil ministry data.
"Overall sales in the 2024 calendar year are expected to be similar to 2023," a source close to an Indian refiner said. "We are not seeing any increase as the two major expressway projects starting from Mumbai were rigid pavements, but the bituminous work of Ganga expressway will start next year and (likely) support consumption," The Ganga expressway project in northern Uttar Pradesh state is likely to consume around 400,000t of bitumen.
