Political change and uncertainty will come to dominate the European bitumen market more than usual in 2025, while demand could decline further than it did in 2024.
Market participants are trying to pin down the bottom of the market for bitumen demand, after falling for several years in most of Europe. And support for demand seems far from certain in 2025 given spiralling public debt, political uncertainty and a lack of funding for road maintenance and projects in most European countries.
But there could be some positive economic news as interest rates start to fall and inflation returns to more normal levels, while the outlook for oil prices in 2025 is less bullish than previously with plentiful supply forecast.
Increased supply and lower crude prices would tend to pressure lower bitumen prices, which could support consumption, given road budgets can be stretched further.
Politics seems more unpredictable than ever, with various elections and other changes expected in 2025, often shifting to the right or populist wing in Europe. The necessity of road maintenance and project work to support economies is plain to see for governments, but there is uncertainty on the priority they will be given by some new political forces emerging.
Bitumen production is still going to be plentiful in the new year, despite some refinery closures and problems in the past year and more. Issues at both Greek and Turkish refineries, which are powerhouses for Mediterranean bitumen exports, will not have a major impact given the weaker demand in much of north Africa and the lack of available arbitrage routes. Outlets to the US and east of Suez are closed at present and show little sign of re-emerging strongly in the period ahead.
Spring maintenance, particularly a February to May shutdown at Algerian Sonatrach's 198,000 b/d Augusta refinery in Sicily, will also limit supply just when demand starts to seasonally rise.
In the last viewpoint Argus expected a weaker year for 2024 demand, while also looking at pricing and how differentials to high-sulphur fuel oil (HSFO) could go negative.
As winter approaches at the end of 2024 this has happened in the north of Europe and fob cargo discounts have been seen in the eastern Mediterranean all year.
Bitumen market fundamentals have drifted further away from those of crude and HSFO in the last year, although a relationship still exists with HSFO maintaining a persistent standing as a price marker for inland bitumen markets for weekly or monthly calculations and for export waterborne prices as the basis with a differential.
But Argus expected that traders would seek more arbitrage movements from the European Mediterranean, and this did not come to fruition in 2024, with little seen moving to the US and even less to the Asia-Pacific region. There is not much indication this will change in 2025 with lower prices and plentiful supply in Asia and US supply points.
Poorer refining margins may have an impact in 2025 after the strength post-Covid, which will put more renewed pressure on older and simpler refiners to close. These facilities are more likely to produce bitumen.
Instead traders will rely on large new ships to feed supply and move bitumen longer distances, a trend already well underway with a number of new ships entering service.
Freight costs should stay at elevated levels given the ETS scheme comes into fuller effect in 2025 after first being implemented in 2024.
The inclusion of shipping in this EU scheme will oblige shipowners and charterers of vessels from 5,000 gross tonnes to purchase carbon allowances, rising from 40pc of carbon emissions in 2024, to 70pc in 2025, before 100pc in 2026.
From uncertainty can come opportunity and with the worst of the economic outlook now behind us then perhaps 2025 can be the beginning of the end in the downtrend for bitumen demand and we start to see vital road maintenance work and infrastructure projects get the funding they need.
