Chinese bitumen supplies stay high, weighing on prices
State-controlled Chinese refiners Sinopec and PetroChina have lowered their domestic bitumen prices by 100-200 yuan/t ($15-30/t) across the country this week because of high supplies and lower-than-expected demand.
The two producers cut both contract and posted prices by Yn100/t across all their refineries, leaving domestic prices in east and south China at around Yn2,600-2,650/t and around Yn3,100-3,150/t ex-refinery respectively. PetroChina further reduced domestic prices at its Liaohe refinery in the northeast by Yn200-300/t to Yn2,012-2,350/t ex-refinery.
This is first downward revision for both refineries after six straight weeks of flat prices.
The price cut comes on the back of softer-than-expected demand in China caused by a combination of factors. These include the Covid-19 pandemic and sporadically wet weather that slowed construction activity and bitumen lifting by consumers, leading to persistently high stocks in onshore tanks.
But high production of bitumen is a bigger factor behind the pressure on domestic prices, market participants and refineries said. Middle distillates margins are still weak, while bitumen margins are comparatively higher, prompting refineries to maximise bitumen production.
Sinopec will increase its bitumen production by an estimated 30pc in October, which market participants said will take its monthly output all-time high of 1.3mn t. The refiner typically produces around 9mn t/yr of bitumen across all its refineries, or around 750,000 t/month.
September and October are the traditional peak production period, when Sinopec's output hits an estimated 1mn t/month. But the likely 30pc increase in the company's October production from these levels will add to oversupply, which demand is not strong enough to absorb.
Regional traders that have term agreements with Sinopec's Maoming refinery said the refinery is asking them to take more than their contracted volumes for supplies into southeast Asia.
In addition, Chinese independent refiners that secured lower-priced crude when the market slumped in March have increased output compared to year-earlier levels, substantially contributing to the oversupply. China's total bitumen production for 2019 was 28.3mn t, with independent refineries making up around 35-38pc of this at around 10.4mn t.
Neither PetroChina nor Sinopec have any immediate plans to reduce bitumen production despite the lethargic demand, given margins for bitumen are higher than for other oil products. Singapore bitumen prices are at a premium of $70/t to 180cst high-sulphur fuel oil, the widest such premium since 14 August. PetroChina may also be looking to offer further discounts at the end of September to push bitumen sales.
The elevated rates of bitumen production and further declines in domestic prices may continue to crowd out Chinese buyers' import needs, at least until import cargoes are priced competitively with domestic supplies.
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