August 31 news
In August, China's asphalt saw a strong upward trend, with both spot and futures prices rising. The increase was driven by four key factors: higher costs, reduced supply, historically low inventories, and expectations of peak demand season.
Spot: The mainstream average price of Chinese heavy traffic asphalt increased to 4593 CNY/ton, a month-on-month increase of about 2%, and a year-on-year surge of 25.8%; the Shandong production area led the increase, with quotes at 4555 CNY/ton, a month-on-month price increase of nearly 4%. 2. Futures: The main asphalt contract in China surged from around 4100 in August, with a cumulative price increase of over 15% for the month. The price increase was significantly stronger than that of crude oil, reflecting additional premium in the fundamentals.
1️⃣ Cost Side: Geopolitical Tensions Push Up the Bottom of Crude Oil Prices
The situation in the Middle East between the United States and Iran remains at an impasse, with increased shipping risks in the Strait of Hormuz, keeping Brent crude oil prices high. The shortage of diluted asphalt and heavy crude oil feedstocks has raised production costs for refineries, creating a rigid cost support. (Source: Eastern Fortune Network)
2️⃣ Supply Side: Refinery operations continue to be sluggish, with weak production schedules.
Asphalt production profitability is weaker than that of gasoline and diesel, leading refineries to voluntarily reduce loads and switch production. In August, the capacity utilization rate of asphalt refineries in China was only 21.7%-23.5%, with weekly production as low as 361,000 tons, a significant year-over-year decline. The advance release of September's production data still shows a notable decrease, forming a medium- to long-term expectation of tight supply.
3️⃣ Inventory continues to decrease and is at a multi-year low in China.
Plant and social inventories have been continuously decreasing, with social inventory declining by nearly 50% year-over-year. Under the condition of low inventory, refineries and traders have a strong desire to maintain prices, leading to increased spot price elasticity. A slight shortage can quickly drive up quotes, according to Sina Finance.
4️⃣ Demand Expectation: Approaching the Golden September and Silver October Peak Season in China
Actual spot operations in August were weak, with southern rains hindering construction and downstream sectors mostly purchasing on demand; however, as the traditional road construction season in the north approaches, expectations for infrastructure and maintenance inventory are heating up. Funds are trading ahead of the peak season, driving futures higher.
Overall, it shows a pattern of weak supply and demand, but strong expectations in China:
- Positive factors: Stronger crude oil volatility, refinery production cuts, extremely low inventories, and the peak construction season in September–October.
- Negative: High spot prices are suppressing downstream purchases, local project funding in China is tight, a potential drop in oil prices will bring valuation pressure, and typhoons and rain are temporarily suppressing construction.
Future Market Outlook
In September, as the traditional construction peak season begins, the fundamental factors of limited supply increase and low inventory levels continue to support asphalt, with the market likely to remain strong within a high range. Risk points to watch include: geopolitical tensions and crude oil price fluctuations in the Middle East, the actual implementation of road construction in northern China, the pace of resumption of production at local refineries, and the negative feedback from high prices on end-users.
