China's bitumen blend demand seen slowing down amid tepid construction activity

China's independent refiners' demand for bitumen blend has been slipping in recent weeks amid tepid margins for producing asphalt, largely due to seasonal slowdown in construction activity in winter, sources told S&P Global Platts on Dec. 22.

Bitumen blend prices are under pressure due to weak demand for asphalt amid a sharp decline in maintenance and construction works in winter, industry sources said.

The price of bitumen blend is largely steady from November at around minus $20-$21/b against ICE Brent futures on a DES Shandong basis, according to trade sources with close knowledge of the matter.

"But few deals were heard done and stocks in the market have remained high," said a trade source.

Some sources believe the difficulty in getting tax deduction on bitumen blend during imports has deterred independent refineries.

"The margins for producing asphalt was around Yuan 200-300 ($31-47)/mt, which was just so so," said an analyst with JLC, an energy information provider.

Those asphalt units, which were in operation, were running at relatively high run rates, but those short of feedstock were mostly idled, leading to relatively low run rates in general, the analyst added.

November imports up 45% on month

In November, total imports of the feedstock rebounded 45.4% from October to 867,976 mt, which were mostly taken by independent refiners, according to latest data released by the General Administration of Customs.

It is expected that the winter stocking for asphalt, which will begin early-January, could help sustain imports for bitumen blend a bit, according to the analyst.

Around 93.5% of the bitumen blend imports, or 811,475 mt, were from the traditional supplier Malaysia, compared with almost 100% in October, the GAC data showed.

Over January-November, Malaysia supplied 83.8% of the total imports, or 15.79 million mt. Imports from the country jumped by 33.4% from 11.84 million mt a year ago.

In the first 11 months, China's total bitumen blend imports surged 34.6% on the year to 18.84 million mt, as end-users aggressively purchased the product during the first half of the year, before the introduction of the consumption tax on June 12.

Independent refineries, especially those in Shandong province, were major buyers of bitumen blend prior to the new tax scheme as these barrels were free from consumption tax and refiners were not required to use crude import quotas when bringing in such cargoes.

China's bitumen blend imports started to rise in April 2020 from around 532,202 mt. Its volume hovered near low levels since 2015, when Beijing first opened crude import access to independent refineries.