Malaysia's state-owned Petronas has started to run more lighter crude at its 270,000 b/d Malacca refinery since mid-July, resulting in an increase in off-specification bitumen supplies.
Malacca typically blends Saudi Arabian crude with fuel oil to produce pen 60/70 bitumen. It has raised the amount of light sweet crude it uses, together with its typical medium sour crude slate, to take advantage of more attractive prices for lighter grades. This has resulted in the refinery producing off-specification bitumen stocks of grade pen 80/100 instead of pen 60/70.
Petronas expects to run the lighter grades at Malacca until the end of July and will only be able to produce pen 60/70 bitumen from the first week of August. Production volumes of pen 60/70 bitumen from August remains uncertain.
Petronas is in negotiations to offload its off-specification cargoes to domestic bitumen trading firms with facilities to blend the product with fuel oil. But the refinery may also seek alternative regional outlets for the cargoes.
This also comes as tight regional supplies have sustained Malaysian bitumen prices at 1,800-1,900 ringgit/t ($422-446/t) ex-refinery for the fifth consecutive week.
The refinery continues to offer limited supplies of pen 60/70 bitumen but has been "rationing stocks" to keep pace with domestic bitumen loading. Immediate demand for bitumen has slowed down slightly because of the onset of wet weather. Road contractors report steady loading during days with supportive dry weather, but flash floods in areas such as Selangor have impeded construction activity.
Demand is expected to continue at a steady pace as market participants increase paving activity to make up for earlier Covid-19 related disruptions. Malaysia-based trading firm Innate Synergy has been awarded three bitumen supply contracts for roading projects in the north of the country in recent weeks, although no related bitumen purchases have occurred.
