Asia-Pacific asphalt commentary

New YorkSupply restrictions across the Asia drove asphalt prices up. Difficulty securing spot freight was a further constraint to the delivery of cargoes.

Singapore commentary
Prices in Singapore moved up over the week despite rumours that cargoes were trading at $150-160/t on an fob Singapore basis. Suppliers confirmed that availability was limited because of a lighter crude slate being run at refineries as well as the lack of availability of spot vessels. Refiners also maximised fuel oil over asphalt because of better margins.

But record high prices for high-sulphur fuel oil largely took their cue from futures markets, as ample supplies and sluggish demand continued to weaken underlying fundamentals. End-users in China remain reluctant to buy, with many power plants shutting down due to losses caused by steep international fuel oil prices and state-administered electricity prices. Weak refining margins for straight-run fuel oil have closed many small Chinese refineries, with a supply glut throughout Asia-Pacific.

Singapore refiner was thought to have supplied a cargo into Sabah at around $210/t on a delivered basis. Freight is around $40/t on a spot basis, leading to a netback of around $160/t on a fob Singapore basis. But the seller was believed to have had access to cheaper freight, lowering its cost significantly.

China commentary
Prices moved up on the supply limitations from north Asian suppliers such as Taiwan and Korea, both of whom were struggling to meet term commitments and balancing these against production and timing of supply.

Chinese refiners have also reduced run rates, adding to supply tightness in the domestic market. Beijing has sanctioned its second hike in retail oil prices for gasoline and diesel in as many months, as it tries to curb product exports ahead of peak summer demand. Asphalt prices were also increased to around 2,100 yuan/t ($254/t). But the hikes will not prevent refiners from cutting runs this month as they are faced with the continual eroding of refinery margins by the low domestic product prices versus crude costs. Refiners must pay international prices for domestic crude, which is linked to the price of Indonesia’s Minas grade.

Sinopec is already asking for less crude in the next few months, according to Chinese trading companies. Throughputs at Sinopec’s 360,000 b/d Maoming refinery — the largest in China — will be trimmed by 3.5pc in July compared with the previous month, say company officials. Chinese traders have already been reoffering crude back into the spot market, selling 2mn bl of August-loading Oman crude with more still on offer. China is also proving less eager to buy July and August-loading supplies of sweet west African grades. The worsening profit margins were also forcing the closure of many small Chinese refineries which also produce asphalt.

While demand was being blunted by heavy rainfall in the south of china and a drought in the central and northern parts in July, traders expected that spot interest for cargoes would be stronger for August and September delivery asphalt cargoes. In the meantime, the inclement weather and South Korea’s production cutbacks were believed to have freed up two vessels which were open to charter. The vessels were the Carbon Tiger and the Carbon Dragon, both of which once belonged to a South Korean trading company.

South Korea commentary
South Korean refiner SK continued to struggle to meet commitments as it was supplying asphalt which it had contracted at low term prices even as it was being pushed to produce more fuel oil because of better margins. Industry sources said the refiner appeared to be producing additional short residue which was currently priced at a lesser discount to fuel oil than was asphalt. The short residue was being exported to China.

Malaysia commentary
Prices went up as suppliers passed on higher costs, despite only dismal demand as construction projects were few and far between. Contractors continued to wait for infrastructure projects to be announced by the government but grew increasingly pessimistic. In a reversal, prices of cargoes delivered by Singapore suppliers were 10 Malaysian ringgit/t lower than cargoes offered by Malaysian supplier Petronas at 700 Malaysian ringgit/t. Singapore prices were expected to move up to be at par if not higher than Malaysian prices within the week.

Thailand commentary
A water crisis continued to affect asphalt production as refiners were forced to scale back refinery operations because of a lack of water. One supplier said that its production was down 40pc this month, and it was only meeting term commitments. There was no possibility of any spot availability in July, said the refiner which typically is a regular spot cargo supplier. Another Thai refiner was also believed to have been forced to cut production significantly as a result of the drought.

Some industry sources cautioned that asphalt availability could be further reduced as refiners switched to maximising fuel oil instead of asphalt. This was because domestic power generation companies were being encouraged to burn fuel oil over other feedstock.

Vietnam commentary
Prices moved up as Singapore suppliers passed on higher production costs. Drum cargoes on a delivered basis into South Vietnam were over $250/t while similar cargoes for delivery into North Vietnam were around $5/t higher.

Traders who typically import cargoes into North Vietnam from Iran said they would give imports a miss this month because rainy weather has slackened demand. At the end of June offers from Iran were around $210/t for drum cargoes delivered into Haiphong.

Taiwan commentary
Little spot availability was reported from Taiwan’s two refiners. CPC said that it was struggling to meet term requirements and was hoping to persuade its refineries to increase production of asphalt by 10pc to allow it to cope better with demand. It was unlikely however that the refinery will concede, given the relatively poor margins on asphalt as compared to fuel oil. Some industry sources said that the lack of availability was forcing ships to wait longer than usual to load cargoes, throwing an already tightly supplied freight market working on short turnaround time off-kilter.

Simosa said that it could have one cargo of around 4,000t available for July lifting. But the refiner was otherwise sold out. The refiner has sold around 50pc of its output on term this year and 50pc on spot. But the high proportion of spot availability is working to its advantage given the higher spot prices as compared with term. The quality of Simosa’s asphalt, usually a sticking point for Chinese consumers, appeared to matter not as much in the current tightly supplied spot market. But Simosa was also believed to be targeting countries like Vietnam which were less fussy about specifications.

Japan commentary
Official statistics from Japan showed that production, consumption, import and exports of asphalt in May were all lower than both the previous month and year-on-year. In May, Japanese refiners produced 326,388t of asphalt against 392,336t in April. Output was just over 2 pc lower than last year. But demand was nearly 3pc lower than the previous May, at 218,163t. In April demand was 237,669t. Exports in May were 35,299 against 31,455t in April, 11.75pc lower than they were the previous May. But Japanese refiners also ran less crude in May, 3.6mn t compared with over 4mn t in April.

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