Bitumen market fundamentals in Asia and the Middle East this year will largely depend on refinery production rates and the level of infrastructure investments by regional governments to revive economies hit by the Covid-19 pandemic.
The pace of economic recovery will be a key factor driving refinery production and any further decisions on cuts to operations or capacity, said a group of panellists at the virtual Argus Bitumen Live conference on 25 May.
"If you do not have an active economy then there is likely to be more rationalisation," said Zhai Ning, director of trading firm Sunshine Oil, a wholly-owned subsidiary of Chinese independent Shandong Chambroad Petrochemicals.
"Things might change with refinery output but it is all about the economy and demand," said Abdul Latif Mohammad, a trader at Bahrain's state-owned refiner Bapco.
Refinery production
Since 2020, bitumen production in Asia has been "challenged by the IMO and refinery economics... and companies have changed strategies for oil," said CK Lim, chief executive officer of Singapore-based logistics and trading firm Hiin.
Chinese refineries in particular have shown greater reliance on oil products and this has impacted refinery economics, Lim said.
Chinese exports of oil products may be higher this year, with elevated run rates at refineries in the country likely to push refiners outside of China to cut operations and rationalise production, Zhai Ning said.
Bitumen supplies have been rising in China since last year on the back of high refinery operating rates. But regional production has experienced periods of production cuts, reducing the predictability of supply cycles.
In this respect, China has beaten the odds compared with other regional refineries and seen higher bitumen production since 2020. Access to cheaper heavy crude from countries like Venezuela and Iran has allowed Chinese refineries to run at high rates since last year, panellists said.
Going forward, regions such as southeast Asia and India, which are under lockdowns and restrictions to curb the spread of Covid-19, will likely be more vulnerable to capacity cuts compared with the likes of China or the US where there have been fewer such measures in recent months.
Infrastructure push
Demand for infrastructure projects is likely to remain a key driver of the bitumen market, despite expectations of further lockdowns or restrictions in regions like southeast Asia in the coming months.
"Covid will be a start-stop situation and it will continue," Lim said. And with repeated waves of the pandemic, it will be important to be prepared for the lockdowns, he added.
Lim expects road construction and infrastructure development to remain a key driver for governments as they strive for economic growth during times of slowdown, although not without some challenges.
Governments may have the funds for road projects, but execution of infrastructure plans will likely be challenged by Covid-19-induced difficulties on the ground, Lim added.
