Asia asphalt commentary
Singapore
Refiners cited limited spot availability for February because of lower production and slightly higher than anticipated demand, say sources. The tightening market situation is likely to see prices stay above $250/t fob in March.
On the fuel oil market, gains in high-sulphur fuel oil (HSFO) prices lagged that of crude futures. A dearth of supply from South Korea and far east Russia forced Chinese buyers to turn to Singapore for prompt cargoes, pushing spot prices higher.
Malaysia
Demand continued to be lackluster as weather conditions remained poor, particularly in the southern part of the country where most projects are expected to take place this year. Prices remained at levels similar to 22-26 January in the absence of strong trading activity.
Indonesia
National oil company Pertamina is said to be seeking up to 20,000t of Pen 60/70 asphalt for delivery over February and March to replace the shortage due to maintenance work at its plant. But the buyer has not been too successful, say market sources, because of the strict specifications of the cargo it is seeking. Traders in the Indonesian market faced with the shortfall from the Cilacap refinery, which is off line to replace tubing in the asphalt unit, have also been making enquiries.
Thailand
Strong domestic seasonable demand is keeping the spot availability very low in Thailand. Producers say they do not expect to have much spot volume to spare for February and March. But with rainy weather starting in April, domestic demand is expected to drop and more spot cargo is likely to be available for the export market.
South Korea
Producers in South Korea cited low spot availability. Sellers are less willing to export on a delivered basis with relatively high freight rates at the moment. South Korean sellers are targeting around $270/t fob, up from the $240/t one refiner achieved for January cargoes. Sellers expect that buying interest will remain strong from China this quarter, particularly once the Chinese New Year holidays are out of the way.
China
Asphalt prices from domestic refineries were largely stable. The cfr prices were around $270-290/t, despite crude oil prices rising in the week 29 January-2 February. China imported 1.87mn t in December, and the total import for 2006 amounted to 34.3mn t, up by 7.9pc from 2005. The freight rate was static this week, around $60/t for freight between Singapore to south China, and $45/t from Singapore to east China.
In east China, demand softened slightly with the approach of Chinese New Year. Daxie refinery in Zhejiang province cut prices by Yn150/t ($19/t) to Yn2700/t because of weaker demand. Trades were done at Yn2700/t at the nearby Zhenhai refinery. Petrochina Wenzhou kept its price unchanged at Yn2650/t. Most prices at Shandong refineries were steady except Huaxing refinery which raised prices by Yn50/t to Yn2500/t. Nearby Binzhou and Hongrun refineries kept prices unchanged at Yn2700/t.
In south China, the tight availability of train transportation has prompted refineries to sell mainly to customers within the province. The price from Petrochina Foshan was stable at Yn2500/t. Demand was little-changed compared with the week of 22-26 January. The tanker Hong Jiang will arrive at Guangzhou on 5-6 February, carrying 4,100-4,200t AH-70 from Singapore.
Refineries in the northeast area continued to supply term contracts, leaving no spot sales. Panjin Northern in Liaoning province increased the price by Yn100/t to Yn2600/t, because of tight supply in the region. The nearby Liaohe refinery kept its price unchanged at Yn2500-2550/t. Petrochina Qinhuangdao continued to supply its normal production to its own stock, in anticipation of higher prices to come.
Petrochina Sichun in southwestern Sichuan province shut down for maintenance at the end of January, but still sold asphalt from its stock at Yn3020/t, down by Yn30/t from the week of 22-26 January, possibly because rainy weather dampened the demand in the region.
Taiwan
Spot prices were slightly higher at 240-250/t, bolstered by rallying crude futures and low spot supply. Private-sector firm Formosa is estimated to export 120,000-130,000t in 2007, not much changed from last year, but state-owned CPC will reduce its exports by around a half from 2006.
Japan
At least three Japanese refiners were said to have asphalt availability which could be exported, but these sellers were reluctant to offer because of the poor prices on a netback to an fob Japan basis, which amounted to around $240/t. Traders assessed an fob Japan price by using a $35/t discount for freight from the delivered price into the Chinese market.
Japanese refiners have switched to using asphalt as a crude distillation unit feedstock, and put more into storage. Some relief will come from cutting runs, with refiners expected to run at least 10pc lower this first quarter compared with the same period last year. One major refiner has already announced that it will cut runs by 10pc this quarter, according to industry sources, who are expecting other refiners to follow suit. Maintenance shutdowns will take some pressure off rising product inventory levels. Turnarounds are expected to peak in the second half of May when refiners shut around 26pc of the country’s refining capacity of 4.83mn b/d/
Japanese product demand typically slows in the second quarter of the year. Refiners routinely shut down for maintenance in March-July as fuel demand slumps between the peak winter period and the start of the summer driving season.
Official Japanese data released in the week 29 January-2 February revealed that Japanese refiners produced less asphalt in 2006 compared with the previous year. Asphalt production was just over 5.4mn t in 2006, down by around 85,000t from 2005. Japanese refiners produced less as demand slid from 3.44mn t to 3.32 mn t, the 120,000t decline in line with industry expectations of declining Japanese domestic buying interest. This was attributed to the Japanese government putting less money towards road construction and rehabilitation, preferring to channel funds towards education and environmental concerns instead. Lower domestic demand did not translate into higher exports. Japan exported just over 327,000t in 2006 compared with nearly 400,000t a year earlier as low international prices discouraged refiners from selling overseas.
India
Prices in the domestic Indian market moved up by an average of 430 rupees/t ($9.80/t )for both bulk and drummed cargoes. Refiners took their cue in lowering prices from Iran, which reduced its prices by $10/t last month. Indian suppliers followed suit to reduce the potential for imports moving into the country from a cheaper-priced source.
Demand this month is expected to be around 350,000t but could move up to 450,000t next month as construction activity peaks. The first quarter is typically a high demand period because of weather conditions that encourage construction and because contractors rush to finish projects before the start of the new financial year in April.
Industry sources expect that an Indian policy to reduce yields of heavier products from refineries could see the import market open up by the end of the decade. New or additional refining capacity coming on stream in India is heavily geared towards desulphurization. Additional coking capacity is also planned, which could come at the expense of asphalt production.
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