In April, constrained passage through the Strait of Hormuz, high and volatile international crude oil prices, and persistently tight refinery feedstock supply continued to provide strong support from both the cost and supply sides for asphalt, leading to a sustained increase in spot prices. Entering May, with planned asphalt production set to decrease further, supply-side support remains firm, suggesting asphalt spot prices may maintain a relatively strong trend.
Supported by both cost and supply factors, the average asphalt price continued its upward trajectory in April. The national monthly average price for asphalt rose to 4,494 yuan per ton, an increase of 310 yuan per ton or 7.41% month-on-month. Although a ceasefire was reached between the U.S. and Iran in April, subsequent peace talks were delayed, leading to high and wide fluctuations in international oil prices and persistently strong cost support for asphalt. Simultaneously, continued disruptions in the Strait of Hormuz kept domestic refinery feedstock supply tight. Asphalt operating rates continued to decline, resulting in lower production. Against this backdrop of tightening supply and high costs, the national average asphalt price maintained its upward trend. However, high prices have suppressed demand, and delayed project starts have led to weak rigid demand, making market sentiment cautious.
Entering May, with refinery production plans further reduced and social asphalt inventories significantly lower year-on-year, supply-side support is expected to remain solid. Asphalt spot prices are anticipated to stay high with fluctuations.
1. Planned Asphalt Production Declines in May, Refinery Resources Limited Domestic refineries have further reduced their asphalt production plans for May. Estimated planned asphalt production for May is 1.1899 million tons, a decrease of 22.02% compared to April's plan, marking the lowest monthly planned output in nearly a decade. From a production perspective, feedstock for some state-owned refineries is unsuitable for asphalt production. Moreover, most state-owned refineries, facing reduced crude oil processing volumes, are opting to produce more profitable products like gasoline and diesel, leading to lower willingness to produce asphalt and thus reduced plans. On the other hand, independent refineries continue to face issues such as tight asphalt production feedstock and high raw material costs, maintaining low operating rates. Consequently, planned asphalt production for May continues to decline, resulting in relatively limited refinery resource supply.
Statistical Table of Planned National Petroleum Asphalt Production for May (Unit: 10,000 tons) | Category | May (Est.) | April (Est.) | MoM Change | May (Previous Year) | YoY Change | |----------------|------------|--------------|------------|---------------------|------------| | Independent Refineries | 84.59 | 103.9 | -18.59% | 130.12 | -34.99% | | State-Owned Total | 34.4 | 48.7 | -29.36% | 104.93 | -67.22% | | **Total** | **118.99** | **152.6** | **-22.02%**| **235.05** | **-49.38%** |
2. Social Inventories Lower Year-on-Year, Destocking Inflection Point Emerged Although limited terminal asphalt consumption in the first quarter led to a continuous build in social inventories, on a year-on-year basis, asphalt social inventories this year are at a significantly lower level compared to the past five years. Furthermore, since the onset of geopolitical conflicts in the Middle East, refinery output has decreased notably while market demand is gradually recovering. After reaching a yearly high in early April, asphalt social inventories have shown destocking for four consecutive weeks. Overall, social inventories are relatively low, and the inflection point for destocking has appeared, meaning inventory levels currently pose no bearish pressure on asphalt prices.
3. Volatile Crude Oil Trends; Cost Decline Poses the Primary Risk Currently, the U.S. and Iran are engaged in peace talks. While the U.S. side has repeatedly announced smooth progress to reassure the market, feedback from Iran suggests disagreements persist, making market volatility likely. Therefore, international oil prices may continue to fluctuate, providing ongoing cost support for asphalt. However, if the Middle East situation significantly eases, a decline in international oil prices would weaken cost-side support for asphalt, and bearish market sentiment would intensify further. Thus, a cost decrease represents the most significant bearish risk factor for the asphalt market in May.
In summary, with planned asphalt production continuing to decline and inventories notably low, supply-side support for the asphalt market in May is expected to remain solid. The national average asphalt price is forecast to maintain a high level with fluctuations, potentially averaging between 4,470 and 4,500 yuan per ton in May. However, if the Middle East situation significantly eases, cost-side support for asphalt would weaken considerably, potentially leading to a downward trend in asphalt spot prices from elevated levels. Nevertheless, considering low refinery output and the time needed for feedstock supply to adjust, refineries may exhibit some price stabilization sentiment. Therefore, any decline in asphalt spot prices is expected to be relatively lagged, and asphalt price performance is likely to be significantly stronger than that of crude oil.
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