FocusChina bitumen prices likely to fall on ample supply, weak demand

20 December 2012 06:38  [Source: ICIS news]

By Alfa Li

SINGAPORE (ICIS)--Bitumen prices in the domestic Chinese market are expected to trend lower in the coming weeks because of ample supply and relatively weak demand due to the cold winter months, market sources said on Thursday.

Domestic prices have started to fall since November, because of weak demand, as most construction projects in the northern parts of China were completed before the onset of the winter season.

Bitumen prices were assessed at yuan (CNY) 4,625/tonne ($742/tonne) EXW (ex-works) on 22 November in northeast China, as compared with CNY5,075/tonne EXW in late October, according to ICIS C1 data.

The downtrend will extend into December, as has been the case since 2007, market sources added.

Some northeast China-based refiners have cut their prices to CNY4,600/tonne EXW. One refiner in southern China has cut its prices of off-spec bitumen to CNY4,500/tonne EXW.

All these low-price products are still being delivered to meet existing demand from a few road projects and from the coking feedstock and the bunker fuel oil blending sectors.

However, major domestic traders’ buying ideas were far lower. They have yet to start building up stocks in preparation for the next peak consumption season, which falls in July to September.

Most Chinese traders build up bitumen stocks amid the low consumption season of bitumen, after the winter weather turns unsuitable for bitumen paving. The season usually starts in November and lasts into the following April.

However, higher speculative winter demand will offset some negative impact from weak end-user demand and help uphold prices from dropping significantly, sources added.

Most speculative traders are not attracted even to the current price of CNY4,500/tonne EXW and thus market participants expect that prices may continue to drop even lower in January.

The mean price in the first quarter of 2013, therefore, is expected to be lower than the mean price of CNY4,780/tonne  EXW in the same period of 2012.

Meanwhile, the government will start levying consumption tax on bitumen that does not meet national or industrial standards as of 1 January 2013.

Therefore, most off-spec bitumen producers will switch to producing standard bitumen. This will further drive up domestic output and put downward pressure on prices.

($1 = CNY6.23)

By: Alfa Li
020-3762 0271

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