Bitumen Operating Rate Fell with Profit Shrinking in Sep
Snapshot: Although it is in the bitumen demand peak season, the rigid demand for bitumen improves limitedly. Amid relatively weak fundamentals, players are cautious about the bitumen market at present, constraining the increment in the prices of spot bitumen to some extent. However, in terms of cost, the international crude oil price has trended up recently. The high cost of bitumen further squeezes the profit of bitumen production. Thus, refineries show weaker enthusiasm for bitumen production, and the operating rate of the bitumen units has slid for a short time.
Refineries showed weaker enthusiasm for bitumen production, and the operating rate of the bitumen units slid for a short term.
In the week from September 7 to September 13, the average operating rate of China’s bitumen units was 56.14%, down 3.03% W-O-W. The operating rate at state-owned refineries and independent refineries both dipped. As seen from regions, Dalian Jinyuan Petrochemical in Northeast China ran its unit at a higher load this week, leading to a slight rise in the regional operating rate. However, the units at Sinopec Qilu Company and Shandong Dongming Petroleum & Chemical in Shandong switched to residual oil production for a short time, and some refineries in the Northwest region and Shandong cut bitumen production. Thus, the overall operating rate of China’s bitumen industry fell back slightly this week.
The international crude oil price trended up, leading to a higher cost of bitumen production.
Up to the week of September 14, the oil inventory of the U.S. including crude oil and refined oil product inventory increased, constraining the increment in the oil price. At present, however, the market is still affected by the bullish factor that Saudi Arabia extends the oil production cuts. The monthly reports of EIA, OPEC and IEA further confirmed the bullish factor. Boosted by the rising demand and decreasing supply, the oil inventory is likely to further decline, strongly bolstering the international crude oil price. Thus, the international oil price fluctuated upwards this week.
On the one hand, the constant rise in the international crude oil price underpinned the prices of spot bitumen, so refineries showed high interest in keeping prices firm. On the other hand, it also led to an increase in the cost of bitumen production.
Source: NYMEX, ICE
With relatively stable spot prices, the bitumen market was tepid.
Compared with the constant rise in the international crude oil price, the prices of spot bitumen trended flat. Up to September 14, the weekly average price of spot bitumen was RMB 4,089.57/mt, up RMB 23.43/mt or 0.58% W-O-W. Despite the strong support of cost, the demand for bitumen underperformed compared with previous years as the rigid demand for bitumen was insipid in 2023. However, the bitumen supply remained high in 2023. The weak fundamentals constrained the increment in the prices of spot bitumen. Thus, the spot bitumen market was relatively stable. The spot bitumen prices faced headwinds in rising.
The bitumen profit was further squeezed.
Amid tepid bitumen fundamentals, the overall bitumen prices at refineries in most regions remained stable, and the prices of gasoline and diesel increased limitedly. However, the international crude oil price continued to rise, leading to a higher cost of bitumen production. Thus, the profit of bitumen production remained decreasing. Up to the week of September 14, the weekly average profit of bitumen production at Jiangsu state-owned refineries was RMB -87.05/mt, down RMB 157.45/mt M-O-M; that at Shandong comprehensive independent refineries was RMB -474.81/mt, down RMB 110.10/mt M-O-M; and that at Hebei simple independent refineries was RMB -497.17/mt, down RMB 113.71/mt M-O-M.
Therefore, the sliding profit of bitumen production drags down the enthusiasm for bitumen production at refineries at present. The operating rate dropped somewhat, underpinning the spot bitumen prices limitedly. The major favorable factors come from cost. However, the continuous tepid demand constrains the rise in the spot bitumen price. In the short term, the spot bitumen price is expected to remain stable. The crude oil price may remain rising bolstered by production cuts. The profit of bitumen production is probable to remain decreasing.
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