FocusNew bitumen downstream market emerging in China - traders

09 April 2012 06:24  [Source: ICIS news]

By Psyche Gong

New bitumen downstream market emerging in China: tradersSINGAPORE (ICIS)--A new bitumen downstream market - feedstock for coking - is fast emerging in Shandong province and some parts of northeast China that will keep its prices firm in the near term, traders said on Monday.

“It may become a stable downstream market for bitumen,” a bitumen trader said.

Bitumen is typically used by end-users to pave highways but it is also used for producing coke in Shandong and northeast China. The coke is then put through coking units to produce oil products such as gasoil and gasoline.

A strong demand for oil products in the market will translate into strong demand for coking feedstock and in turn, bitumen, market sources said.

Many bitumen refineries in Shandong and northeast China have been blending their bitumen output to produce coking feedstock instead of selling their bitumen in the spot market, largely because of the higher margins for coking feedstock, a Shandong-based player said.

On 8 April March, the coking feedstock price in Shandong province was accessed at yuan (CNY) 5,575/tonne ($883.50/tonne), CNY425/tonne higher than the local bitumen price of CNY5,150/tonne, according to data from C1 Energy, an ICIS service in China.

“We would not switch back to bitumen production, unless it can fetch the same price as coking feedstock,” said a Shandong based refiner.

This trend of using bitumen to produce coking feedstock has become increasingly popular in Shandong and the regions north of the Yangtze river, where there is strong demand for coking feedstock from local independent refiners, industry sources said.

However, this trend will only continue if the margin spread between coking feedstock and other downstream markets of bitumen remains large, market players said.

In February, there was only one major refiner that supplied bitumen spot cargoes in Shandong; the rest of the province’s refiners channelled their bitumen output to the production of coking feedstock, market sources said.

Shandong refiners supplied 70,000-80,000 tonnes of bitumen in February this year, down by 37.5% year on year, according to C1 Energy.

Northeast China produced around 220,000 tonnes of bitumen, 40% of which was forecast to be sold to the coking feedstock and bunker fuel oil blending markets, said analysts.

In the first two months of 2012, over 15% of China’s bitumen output was used for blending as coking feedstock, according to C1 Energy.

However, some bitumen producers in March reverted back to selling their bitumen output in the spot market as the demand for coking feedstock fell, said market sources.

The strong demand from the coking feedstock market has decreased bitumen supply to other end-users of bitumen, even though the domestic supply of bitumen remains stable.

Domestic refiners supplied about 1.03m tonnes of bitumen per month to end-users such as road project owners in January-February 2012, a fall of 14.2% year on year, according to C1 Energy.

The supply was further tightened as China imported a record low of 160,000 tonnes of bitumen in February, a 43% year-on-year drop, according to China’s General Administration of Customs (GAC).

The tight bitumen supply and further demand created by China’s large-scale road construction projects in 2012 may continue boosting domestic bitumen prices to new highs in the short term, analysts said.

Since the beginning of 2012, China’s domestic bitumen prices have been rising as a result of tight supply and bullish crude prices.

The deal prices of domestic bitumen were CNY4,943-5,083/tonne latest prices on 6 April, up by CNY595/tonne or 13.3% from early January, according to data from C1 Energy.

($1 = CNY6.31)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Psyche Gong
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