Overall, the trend of asphalt in 2023 is still converging with that of crude oil.

Firstly, let's review the trend of the asphalt market in 2023. Domestic asphalt prices have declined in 2023, with an average price of 3,711 RMB/ton at the beginning of the year and 3,433 RMB/ton at the end of the year, a decrease of 7.47%. From the asphalt price trend chart, it can be seen that the highest price of asphalt in 2023 appeared in early March, with a highest price of 3,960 RMB/ton. The lowest price of asphalt appeared at the end of the year, with a lowest price of 3,433 RMB/ton and a maximum amplitude of 15.35%. Overall, the domestic asphalt trend fluctuated from a high level to a wide decline.

In the first half of the year, the overall price of asphalt fluctuated broadly with oil prices. In the first half of the year, the supply and demand of asphalt increased, and the inventory rate of refineries remained stable in the first quarter and increased slightly in the second quarter, resulting in a relatively balanced supply and demand. The price of asphalt in the third quarter followed the trend of oil prices. In the third quarter, the supply and demand of asphalt remained at a high level, while demand gradually increased and refinery inventory rates declined. But in the context of a strong rise in oil prices, the increase in asphalt is clearly insufficient. In the third quarter, both crude oil and asphalt prices rose to high levels, while downstream acceptance of high priced asphalt was low, limiting the increase in asphalt prices. Since the fourth quarter, oil prices have driven asphalt prices down. The supply and demand of asphalt in the fourth quarter have slowed down due to seasonal factors, and refineries have accumulated reserves, especially in winter. Blizzards in the north and increased rainfall in the south have seriously affected road construction and transportation. The release of winter asphalt storage contracts provides support and brings some upward space to the domestic asphalt spot market at the end of the year.

In 2024, as the fourth year of the 14th Five Year Plan, some highway construction projects will accelerate their completion progress, and some projects that have been delayed will also be launched in 2024. The fiscal policy for 2024 is expected to further strengthen, enhancing economic stability through infrastructure construction. The increase in fiscal deficit rate next year and the mitigation of short-term debt repayment risks will also make local fiscal funds more focused and efficient. It is expected that the renovation of urban villages and the construction of affordable housing will be further promoted, and the consumption of waterproof asphalt is still expected. There is a certain optimistic attitude towards the demand for asphalt in 2024.

Cost aspect: Cost factors account for a large proportion of profits in asphalt enterprises. Looking ahead to the key variables in the crude oil market in 2024, one is the OPEC+ production policy, and the other is the macroeconomic situation next year. There is a major contradiction in the supply and demand structure of oil in 2024, and the low inventory structure of global oil products is difficult to break in the short term. The oil price is expected to maintain an overestimated level in 2024, and the oil distribution operation range may be between 70-95 US dollars per barrel.

Supply side: In 2023, the annual asphalt production capacity utilization rate in China will be between 30% -50%. In 2023, the national asphalt production capacity increased by 8.18 million tons, of which 3.8 million tons were phased out and 11.98 million tons were added. The annual production is expected to reach 32.05 million tons, a year-on-year increase of 4.04 million tons or 14%. The total asphalt production of domestic refineries is expected to be 31.28 million tons in 2023, an increase of 4.66 million tons year-on-year and an increase of 18% year-on-year. The asphalt supply is expected to remain high in 2024: due to the drag of the global economy, the average expected crude oil in 2024 may be lower than in 2023, which is beneficial for refineries to reduce production costs and improve refinery efficiency; At the same time, the operating rate of domestic comprehensive refineries may return to normal. In 2024, domestic finance will focus on boosting infrastructure demand, and asphalt demand can still be expected. Asphalt supply should increase to match this.

Demand side: From January to October 2023, China's highway transportation fixed assets investment completed a total of about 2.4 trillion RMB, with a year-on-year growth rate of 2.93%. The top ten provinces and cities in terms of investment amount mainly include Sichuan, Zhejiang, Shandong, Guangdong, Hubei, Jiangsu, Guangxi, Henan, Yunnan, and Anhui. These regions have relatively abundant funds, faster project progress, and a much higher demand for asphalt compared to other provinces and cities. The focus of the asphalt market in 2024 is mainly on the demand in these regions.

Import and export: The cumulative import volume from January to November 2023 was 2.9 million tons, an increase of 184,000 tons or 6.8% compared to the same period last year. The cumulative export volume from January to November 2023 was 512,000 tons, an increase of 5000 tons or 1.0% compared to the same period last year. In December, the import volume of China's petroleum asphalt is expected to be around 170,000 tons, a decrease of about 15.0% compared to the previous month; The export volume is expected to be around 35,000 tons, a decrease of about 12.5% compared to the previous month. The main judgment is based on the arrival of a domestic cold wave, combined with the impact of snowfall weather, which gradually weakens downstream demand and suppresses overall procurement enthusiasm. The pattern of oversupply of domestic asphalt has not changed, and the demand for asphalt may increase in 2024. The expected slight year-on-year increase in asphalt imports in 2024 is not the main contradiction in asphalt supply.

Overall, with the support of fundamentals, Venezuela's crude oil resources decreased in the first half of the year, and the raw materials for asphalt production were relatively scarce. Coupled with the release of stocking demand, the supply and demand of asphalt were tight. It is expected that asphalt may show a rebound and fluctuating trend during the downward shift of the crude oil center of gravity. In the second half of the year, with the arrival of Canadian crude oil resources, the problem of refining raw materials has been solved. In addition, the main refinery load has increased, and after the peak demand season, the supply and demand of asphalt will gradually loosen. Inventory will return to the average level, and the price range is mainly organized. It is expected that the asphalt price in Shandong region will operate between 3,300-4,000 RMB/ton.

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