US cold front signals end of bitumen flows from Europe

A cold snap across much of North America that has caused temperatures to fall well below seasonal norms has helped to slam shut a westbound transatlantic arbitrage for asphalt (bitumen) cargo flows from Europe that had been active for several months.

The gap between cif New York and fob Spain cargo prices narrowed to just $28/short ton ($31/metric tonne) last week from approximately $56/st in the week ending 4 November and around $88/st ($97/t) in late October. US east coast prices drifted lower to $375-405/st cif New York last week, while fob Spain prices rose by $20/st to roughly $359-$364/st, essentially closing the arbitrage for European bitumen cargoes.

US east coast prices fell last week on weaker demand because of the colder weather, as well as record-high inventories, the result of the recent wide heavy-light crude differential that incentivised heavier crude runs and more asphalt production.

This late in the season, most east coast buyers are also hesitant to increase their inventories by large amounts, choosing instead to buy smaller winterfill volumes from more local origins versus the larger cargoes that typically trade from the Mediterranean.

Competitively priced volumes from Canada and other US regions have also kept pressure on east coast prices and requirements for imports from Europe. Some east coast buyers are instead choosing to rail in lower-cost asphalt from the Midwest, where wholesale values are $300-$360/st for November.

Arb awakening

The westbound arbitrage opened when the spread widened to more than $200/t in early July from $30/t at the start of this year and after averaging just $5/t in 2021.

Following Russia's invasion of Ukraine and subsequent spike in oil prices, bitumen experienced demand destruction throughout Europe. This in turn drove bitumen cargo differentials to Mediterranean high-sulphur fuel oil down to unusually low levels for the peak summer period, while forcing trading and supply firms to seek alternative export markets.

The resulting spurt in westbound transatlantic movements has meant 448,000t of asphalt has moved from Europe to the US so far this year, including 326,000t originating from Turkey, according to Vortexa data. That signalled a return to pre-Covid volumes that amounted, according to US Energy Information Administration data, to 445,000t in the whole of 2019 before dropping to 228,000t in 2020.

EIA data showed just 53,000t of European bitumen flows to the US in all of last year, rising to 143,000t in the first eight months of this year, before most European cargoes purchased when the arbitrage opened could arrive.

Aside from the US, numerous Mediterranean cargoes have also found their way into South American markets over the past few months, mainly Argentina and Uruguay. One cargo also shipped to Belem, Brazil, from Taranto, Italy, and arrived at the end of October. According to Vortexa, Europe to South America bitumen flows have totalled 171,000t so far this year, up from 26,800t from the same period the year prior.

The usual winter activity slowdown in northern European and the Mediterranean is likely to hit bitumen demand hard from December onwards, especially as natural gas and other utility costs for running mixed asphalt plants and road paving machinery mount during the winter months. This could result in sharp price declines and a renewed search for arbitrage export outlets before the impact of sanctions on Russian crude and feedstocks, as well as its bitumen exports, kick in before the new road paving season starts in the spring.

By Sarah Tucker, Keyvan Hedvat and Tom Woodlock