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.
