Viewpoint: Asian bitumen market on road to recovery

Asia-Pacific's bitumen prices have come full circle at the close of this exceptional year and the market is poised for a stable-to-firm start in 2021, supported by continued balanced supply conditions and a push for infrastructure growth.

Argus assessed bitumen prices at $330/t fob Singapore on 18 December, $3/t below the level on 20 January, around the time the Covid-19 outbreak was emerging as a major incident in the Chinese city of Wuhan. Asian prices then fell dramatically by 63pc to $120/t in May on the impact of lockdowns across major countries and the subsequent collapse in energy demand and prices.

"We expect bitumen supply to be tight next year," a key Singapore-based refiner said. "Refineries may see production cuts unless the Covid-19 pandemic goes away."

Weak fuel demand has triggered a wave of refinery rationalisation globally this year and in turn chipped away at bitumen production. Key refineries in Singapore, South Korea and New Zealand were forced to cut bitumen production or shut permanently, pressured by drastic falls in refining margins.

Severe and cascading disruptions caused by lockdowns and restrictions to stem the spread of Covid-19 heavily eroded bitumen demand in the first half of 2020. Construction projects came to a standstill or saw prolonged delays.

Most governments tried to kick-start infrastructure projects to revive jobs after lockdown measures began to ease slightly after mid-year. But governments, especially in the developing Asia-Pacific region, were pushed to prioritise healthcare instead of road construction projects because of stronger demand for medical supplies and other necessities owing to the pandemic. This resulted in reduced funds disbursement for and sustained delays in construction projects.

But there remains potential upside for the bitumen market, as the need for infrastructure development to aid economic recovery may drive its comeback next year.

Below are the key markets to watch in 2021.

Singapore

Singapore is poised to enter 2021 with balanced-to-tight supply conditions. Singapore exported 2mn t of bitumen in the first three quarters of this year and looks set to match the 2.5mn t it exported last year by the end of 2020.

Steady demand from China, Asean countries and the Pacific region has supported regular exports. This has come despite the shutdown at ExxonMobil's 1.3mn t/yr Singapore-based bitumen unit in the second quarter of 2020. Another key Singapore-based refiner also reduced production in December on the back of thin margins.

Vietnam

Vietnam has defied the odds and withstood the challenges brought on by the Covid-19 pandemic by posting likely GDP growth of 1.8pc in 2020, according to the Asian Development Bank (ADB). The government will launch its 11th five-year socio-economic development plan in 2021, which is expected to include ambitious plans for infrastructure development.

Vietnam's bitumen imports are expected to reach around 700,000t this year, according to industry estimates, in line with the government's roadmap for infrastructure development and expectations of a recovery in domestic demand from mid-November. This would be a rise of nearly 80,000-100,000t from the country's imports in 2019.

China

China has emerged with the strongest economic growth forecast of 2.1pc in 2021, according to the ADB. The country also plans to reveal details of its 14th five-year economic plan next year, which will include a roadmap for infrastructure planning for the next half of the decade.

The first few months of 2021 are expected to see some sluggishness because of the lunar new year holiday in February and unfinished projects rolled over from 2020.

"We expect 2021-22 to be slow in terms of bitumen demand as these are the first years of the planning period," said a key Chinese bitumen buyer.

Independent refineries in China have continued to run at an average rate of 80pc through the better part of 2020, with some of them maximising bitumen output. This resulted in slower import demand through the fourth quarter of 2020.

South Korea

A different scenario awaits South Korean refiners, as a thin spread between bitumen and fuel oil prices through the last quarter of 2020 has eroded margins and trimmed production.

This comes in addition to pressure from weak refining margins overall that pushed refiners like SK Innovation to cut bitumen production at the desulphurisation unit at its 870,000 b/d Ulsan refining complex in the middle of this year. The producer has no dates set for when its production can be ramped up.

"This year was the worst for refineries here, and there may be further supply cuts," a South Korean producer said.

New Zealand

New Zealand's bitumen imports are expected to rise in 2021. The country will become fully reliant on imports with the permanent closure of Refining NZ's 100,000-120,000 t/yr bitumen unit at the Marsden Point refinery from next year.

New Zealand is preparing to import 160,000-170,000t of bitumen in the next financial year that starts on 1 July 2021.

India

The Indian market is expected to continue to see a push for infrastructure growth, with the government-led Bharatmala Pariyojana initiative set to keep road construction projects moving next year. The initiative aims to build 34,800km of roads during the financial years from 2017-22.

Road construction projects in the country have been delayed since early this year because of prolonged Covid-19-related lockdowns. Heavy monsoon rainfall further pushed back the restart of road paving activity to early October. But demand has since surged as road contractors scurry to complete projects.

By Mahua Chakravarty