China's firming bitumen blend demand fails to lift prices amid ample port stocks

Improving margins for producing asphalt have gradually pushed up demand for bitumen blend in June, but prices remain low due to high stocks at ports, market sources told S&P Global Commodity Insights June 22.

"The margin has been above Yuan 100/mt ($2.04/b) for producing asphalt, which is much better compared with producing oil products," said an analyst with local energy information provider JLC.

Margins for producing several oil products were negative due to the high feedstock cost of crude, especially for those cracking regular crudes, the analyst said.

With the asphalt margin improving gradually, asphalt producers have generally lifted throughput in order to boost output, which has increased demand for bitumen blend as feedstock, sources said.

"But stocks of bitumen blend have been ample, thus discounts for the grade remain low," an independent refinery source said.

Bitumen blend was being offered at a deep discount of around $33-$34/b on a DES Shandong basis to ICE Brent futures, sources said, with some offers at a $35-$36/b discount. This compared with deals concluded a month ago at discounts of around $30/b on the same basis.

China's independent refineries, especially those in Shandong province, are the major buyers of bitumen blend, which they use as feedstock to produce asphalt for paving roads.

With fewer crude import quotas allocated in the first batch of 2022 to China's independent refineries, it is likely that those independent refineries will continue to take bitumen blend as a supplement feedstock, market sources said. Beijing allocated 107.4 million mt of crude import quotas in the first batch at end December, down 9.4% from the same batch in 2021, and five independent refineries received no allocations in the round.

May imports down 45% from April

China's imports of bitumen blend fell 44.6% month on month to 907,783 mt, or 185,949 b/d, in May, latest General Administration of Customs data showed.

Some of the decline could be due to some bitumen blend cargoes being declared to customs as crude, market sources said.

Bitumen blend is usually blended from Venezuelan crudes, which have attracted a consumption tax since June 2021. In order to reduce the import cost, some cargoes were imported as blended crudes from Malaysia, sources said, although the majority still arrive via the old bitumen blend route.

Most of the cargoes imported from Malaysia were put in bonded storage first, as it usually takes time to find a buyer.

Over January-May, China's bitumen blend imports fell 40% year on year to 7.1 million mt, outpacing the drop in crude imports by the country's independent refineries, which fell 17.8% over the same period to 59.04 million mt, data compiled by S&P Global showed.