FocusOversupply to weigh down on south China bitumen market

22 January 2013 03:45  [Source: ICIS news]

By Alfa Li

Bitumen, also known as asphalt, is used in road construction and paving as well as in the water proofing of homes and industrial buildings.SINGAPORE (ICIS)--Spot bitumen prices in southern China may remain under pressure as the region’s chronic oversupply is expected to worsen with a projected 30% increase in production capacity by end-2014, industry sources said on Tuesday.

The region – which comprises the Guangdong, Guangxi, Hainan and Fujian provinces – has a total bitumen capacity of 4.4m tonnes last year, with 1.4m tonnes in new capacity expected to come on stream over the next two years, they said.

The forecast increase in capacity is deemed the biggest compared with the rest of China, industry sources said.

Bitumen is currently being offered at yuan (CNY) 4,700-4,750/tonne ($754-762/tonne) in south China this week, but with not much of an outlet to sell the cargoes, producers may have to bring down prices, market sources said.

About half the region’s production is being consumed domestically, while the rest is supplied to other regions in China and a small portion is exported, industry sources said.

Bitumen, also known as asphalt, is used in road construction and paving as well as in the water proofing of homes and industrial buildings.

With supply expected to grow further, the region’s exports volume may have to increase, and with it, the necessity to bring down prices to draw in foreign buyers, industry sources said.

In the past two years, bitumen export prices were lower by an average of CNY100/tonne than the quotes in the domestic market – a condition that is expected to continue, they said.

In the export market, China mainly competes with southeast Asian exporters Singapore and Thailand, where bitumen prices are currently being quoted at around $620/tonne FOB market sources said.

South China accounts for 15.4% of the country’s total bitumen production and 10% of total demand for the oil derivative product as of end-2012, industry sources said.

Production capacity in the region more than doubled over the last four years from 2.1m tonnes in 2009. Actual bitumen consumption in south China totalled 2.3m tonnes last year, and is expected to increase by 4% to 2.4m tonnes in 2013, industry sources said.

Between transporting more cargoes to other regions in China and exports, southern Chinese producers appear to be better off shipping out bitumen volumes to markets abroad.

These producers normally transport bitumen cargoes via trucks given persistent tightness in railway and vessel capacity. Delivery by trucks, however, is only good for distances of less than 500km, making exports a more viable route for the region to get rid of excess cargoes, industry sources said.

To compete with other regions within the country that are also saddled with surplus bitumen supply, it will become necessary for south China producers to bring down their prices, market sources said.

In the second half of 2012, a south China-based refiner sold bitumen cargoes to the eastern Yangtze River Delta by ship at CNY300/tonne, about CNY100-150/tonne lower than the price if the cargoes were to be delivered by truck.

($1 = €0.75 / $1 = CNY6.23)

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


By: Alfa Li
020-3762 0271



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