Viewpoint: Asia bitumen to see stronger demand in 2023

The Asia-Pacific bitumen market is expected to see stronger demand in 2023, supported by consumption from key developing economies in the region.

Expectations of firmer demand from China, India, Vietnam and Indonesia are likely to lead towards a stronger Asia-Pacific market in 2023. All of these, as well as other economies, have been battered by the Covid-19 pandemic and the impact of setbacks from the Russia-Ukraine war, currency fluctuations and climate change in 2022.

Hence, governments in most of these countries are expected to prioritise job regeneration and inject funds into infrastructure development as key to revitalising their economies.

"We expect a stronger year and demand to be better," a key Singapore-based trader said, adding that January will see a pick-up in momentum as demand from China may strengthen despite the lunar new year holiday from 21-27 January.

China is the world's largest bitumen importer and consumer.

Road ahead for China

"China is going to be the key [after] the change in its zero-Covid stand," a second key Singapore-based trader said. The speed of recovery in the Chinese economy will determine the robustness of regional consumption, he added.

Bitumen imports into key east and south China ports fell substantially in 2022, adding to 2021 losses. This fall came on the back of a series of lockdowns and stringent measures to curb the spread of Covid-19 across China in 2022.

A drawdown in project funds for roadworks and Covid-19-related restrictions pushed down total consumption, although overall production at state-owned refineries was also estimated to be lower in 2022.

China consumes about 54pc of the world's bitumen but its imports fell to multi-year lows in 2022. China imported about 2.4mn t up to October 2022, GTT data show, with estimates for the entire year at around 3mn t based on the year-to-date average calculated by Argus. This is about 6.2pc lower than the 3.2mn t that China imported in 2021.

China enters the third year of its 14th five-year economic planning period in 2023. A push for project completions, including roadworks, typically occurs in the last two years of the plan — in this case 2024-25 — when bitumen demand will also pick up.

But consumption could firm in 2023 because of pent-up demand from road construction projects that were held back by Covid-19 restrictions in 2022, according to regional market participants.

Continued strength for Vietnam

Bitumen demand could also rise in key consumer Vietnam, with market participants expecting its appetite for imports to rise because of a continued government push for infrastructure development. Vietnam has its own five-year economic plan from 2021-25.

This government push has turned Vietnam into a key importer, with it taking bitumen from all major exporting countries in the region. Its imports surged to nearly 900,000t in 2020, a level it has sustained despite the pandemic.

An estimated 13 projects to develop highways were launched in 2022, so demand in 2023 is expected to remain at levels similar to the year before, a key Vietnam-based importer said. A strong push for further infrastructure development is expected in 2024-25, which are the last two years of Vietnam's current five-year plan, the importer added.

Road to recovery for Indonesia

Fellow key consumption market Indonesia began showing signs of demand recovery in the last quarter of 2022, concluding a series of spot deals for supplies from Singapore and other key exporters in the region.

"We have seen an estimated 20-25pc drop in demand from Indonesia this year [2022] but we expect a boost in demand next year," a key regional trader said. Market participants expect the Indonesian government, like others in the region, to make infrastructure development a key focus for reviving the country's economy.

Indonesian imports fell by nearly 20pc through 2020-21 after infrastructure works came to a halt and funding was slashed by the government as it tried to deal with the pandemic that began to take effect in late March 2020.

Indonesia's pre-pandemic bitumen imports were around 1mn-1.2mn t/yr, before falling to around 800,000 t/yr in the past two years.

Rapid demand rise in India

Bitumen consumption could see one of its sharpest boost from India in 2023 on the back of an infrastructure push ahead of Indian general elections in 2024.

Consumption could surpass 8mn t in 2023, rising from 2022 levels estimated at 7.5mn-8mn t, according to market participants.

India has faced roadblocks in the past couple of years, brought on by pandemic-related restrictions and limitations on project funds in 2022. But this failed to stem the appetite for roadworks, leading to a 42pc year-on-year rise in Indian imports to 2.7mn t in 2021, according to data from the Indian oil ministry's Petroleum Planning and Analysis Cell (PPAC). Market participants expect a similar level in 2022, with imports already at 2mn t up until September.

But this expected strong demand growth may not be matched by an increase in domestic production, leading to market expectations of a supply crunch in the country in the future.

Production was at 3.9mn t up to September 2022, PPAC data show, well below the estimated 7.5mn-8mn t of consumption for the whole year.

"Refineries, even today, are not able to meet the full supply requirement and this is going to continue," a key Indian refiner said.

Hence, India's need for imports is expected to rise going into 2023 with the Middle East remaining its main supplier.

Other factors Down Under

Australia and New Zealand are among countries that could see some import changes. Australia is hoping for better weather conditions for roadwork projects that could, in turn, push up its import demand while New Zealand has to adapt to changes in the way it has been importing.

Australia is ending 2022 on a sunny note as warm and dry weather through December gave road contractors a respite from relentless wet and flooded conditions in the east coast of the country through most of this year. This has given contractors an opportunity to do some road construction before going away for the year-end holidays.

"We are expecting strong demand from January after the holidays and imports to go back to levels seen before the pandemic," a key Australian importer said.

Australian imports are estimated to come in close to 860,000t in 2022, based on GTT data, with imports hovering in a 840,000-900,000t range in the past two years. It imported about 950,000t of bitumen in pre-Covid 2019, GTT data show.

Australia mainly imports bitumen from Singapore, Taiwan and Thailand.

New Zealand on the other hand could also see some difficulties in securing supplies from mid-2023 with the exit of domestic fuel retailer Z Energy from the bitumen business. This is expected to result in importers having to source bitumen of a variety of grades from Asia and other regions.

"The key thing would be to find vessels and freight rates to bring the cargoes all the way to New Zealand," a major regional trader said.

Uncertain path ahead for Asian producers

Expectations of robust demand growth from some of these key markets may be good news, but Asian refiners face uncertainties in terms of steady production in 2023.

Bitumen supplies from refineries are likely to hinge largely on gasoil cracks and whether these will remain at their prevailing highs as in 2022.

Record-high spreads between bitumen and 380cst high-sulphur fuel oil (HSFO) prices in 2022 failed to incentivise refineries to produce more bitumen. The bitumen-HSFO spread hit record highs of $197.80/t in early September 2022, before falling to $117/t on 19 December 2022. This key spread remains wide enough to ensure robust bitumen production economics. Refiners typically look at a positive $30-40/t spread between 380cst HSFO and bitumen to secure some production margins for this byproduct.

Nevertheless, most refiners are still expected to produce more low-sulphur fuel oil (LSFO) if they can and are likely to give bitumen production a lower priority, a Singapore-based trader said.

But overall supply availability could be similar to 2022 levels with production largely balanced against demand on the whole, according to regional participants.

By Mahua Chakravarty