European bitumen markets face another year in the doldrums in 2024 to follow sharp falls in activity in 2022 and 2023, and any chance of economic recovery and a much-needed pick up in activity for road projects and maintenance work could come from 2025.
Lower production, already seen through 2023, will not have a great effect because consumption trends have been even weaker than those falls, and this is set to continue into 2024.
But financial pressures should ease through the course of 2024, with lower inflation and oil prices. Delays to road spending and maintenance will reach low points in 2024 and, for some, into 2025 and only then have the potential to rebound.
Maintenance work can only be put off for so long to preserve the integrity of road networks with figures from the UK showing the one-time cost of bringing roads in England and Wales up to a "reasonable" standard increased by nearly 11pc year on year to £14.02bn ($17.14bn) in 2022.
Pricing of bitumen will continue to be volatile, with likely differentials to fuel oil hitting fresh multi-year lows in north and south Europe. With plentiful supply and weak demand, differentials to high-sulphur fuel oil (HSFO) could go negative in northwest Europe and particularly in the Mediterranean.
A year ago, Argus highlighted lower bitumen production thanks to changing crude slates as well as the drop in demand, which were to come on top of steep declines already seen in 2022. But the predicted closure of more European refineries did not materialise, although plans are afoot in several cases to close plants or convert to storage or biofuels facilities, as at integrated Eni's Livorno refinery in Italy.
Strong refining margins enjoyed through much of 2023 have meant many closures have been put off. But for more simple refineries it is only a matter of time before closures are again evaluated, and much depends on the direction of refining margins for the most profitable products, such as road fuels.
Bitumen vessels have been getting bigger with several new larger carriers (from 8,000-35,000dwt) ordered throughout 2023 and more likely in 2024. But arbitrage opportunities to ship bitumen outside of Europe could remain challenging in 2024 after being in the doldrums in 2023. The Mediterranean to north Europe route is an exception, and is likely to remain a keen feature in 2024.
Trading firm Trafigura and Vitol are likely to seek to move cargoes from Italy, Greece or Turkey, where supplies are plentiful, to other markets including potentially the US and Asia-Pacific in 2024. Vitol will open new bitumen storage facilities in Malaysia in the middle of 2024, and Trafigura has established storage in Malaysia. Both have the large ships to make such voyages economic, although much depends on bitumen demand — and prices — in those destinations.
The Chinese economy is far from booming, while US demand has been relatively weak with funding under pressure. But with a US election likely to give some boost, as President Joe Biden seeks a second term, more movements could emerge in that direction.
All the while in Europe bitumen demand will remain under pressure, with consumption probably lower in 2024 than even in the already-weak 2023, while bitumen prices will remain relatively subdued and further disconnected from crude and fuel oil.
