Reposted from: Futures Daily
After the Spring Festival holiday, the spot market price of asphalt ushered in a rise. The spot price in Shandong rose from 3,630 yuan/ton before the Spring Festival to 3,750 yuan/ton, and the quotation of Sinopec refineries rose by 150-200 yuan/ton. The price in the spot market is high, and the supply remains tight, which drives the futures market to open higher after the Spring Festival, with the highest price rising to 4,000 yuan/ton.
Recently, the Federal Reserve’s interest rate decision slowed down the rate hike by 25 basis points as scheduled, and the interest rate range rose to 4.5%-4.75%. It also hinted that it is appropriate to continue raising interest rates, because the current inflation has eased, but it is still at a high level. With the implementation of the Fed’s interest rate hike policy, the U.S. dollar index rebounded from the low level, commodities were under pressure, and Brent crude oil continued to fall to around $80/barrel. On the whole, supported by the spot market, asphalt performed better than crude oil, but due to the fall in oil prices, the crack spread rose to a high level, and the valuation of asphalt was relatively high.
Increased refinery profits
Recently, the U.S. non-agricultural data has greatly exceeded market expectations, showing the resilience of the U.S. economy, and market interest rate cut expectations have weakened. The European Union announced that it will join other countries to impose a new price cap on seaborne Russian oil products from February 5, leading to a rapid decline in oil prices. Since the beginning of this year, the comprehensive profit of the refinery has improved significantly, and the Shandong spot price has gradually risen to the current 3,750 yuan/ton after the implementation of the winter storage policy. Recently, the price of diesel oil has risen significantly, and profits have risen sharply. Currently, the comprehensive profit of asphalt production is around 600 yuan/ton. The increase in refinery profits is conducive to the increase of refinery production. In January, the share of Venezuelan crude oil exported to the United States increased, and it is necessary to pay attention to whether the volume of diluted bitumen arriving in Hong Kong will decrease.
From the perspective of the supply side, due to the recent production change and maintenance of some refineries, the operating rate of refineries remains low, and the overall spot supply is tight. According to Baichuan data, the operating rate of refineries this week was 27.9%, a decrease of 1 percentage point compared with the previous year. The output of asphalt discharge in January was about 2 million tons, and the planned output of asphalt discharge in February was 1.78 million tons, a decrease of 10.91% from the previous month. The output in February was lower than that in January, mainly due to the reduction of production by individual refineries in Shandong and the shutdown of Alpha in East China, which led to a decline in output. After the Spring Festival, the weather in the northern region is still cold and construction conditions are limited. It will take some time for the demand to recover, and the overall demand is still weak.
Inventory pressure is controllable
Judging from the inventory level this week, the social inventory was 748,000 tons, an increase of 45,000 tons or 6.4% from the previous month; the refinery inventory was 938,000 tons, an increase of 15,000 tons or 1.6% from the previous month, and the total inventory was 1.686 million tons. The previous increase was 216,000 tons. The inventory in the same period in 2022 is 2.25 million tons, and the current inventory is at a year-on-year low level, and the overall inventory pressure is not great. The main reason for the accumulation of warehouses is that demand has not fully recovered after the Spring Festival, and some refineries have resumed production, resulting in an increase in factory warehouse inventories. This week, refinery shipments were 274,000 tons, an increase of 10% week-on-week. The main reason is that the shipment volume decreased significantly during the Spring Festival holiday, and after the industry resumed work, the shipment volume increased. On the whole, due to the impact of seasonal low temperatures, the recovery of terminal demand is still slow.
Pay attention to the amount of diluted bitumen arriving at the port
Overall, although refineries have maintained low supply recently, market resources are tight, spot trading sentiment is good, and asphalt performance is relatively strong, but cost-end oil prices have fallen sharply, asphalt cracking spreads remain high, and asphalt valuations are relatively high. On the supply side, with the recovery of processing profits, it is beneficial for refineries to increase production, and follow-up attention will be paid to the arrival of diluted bitumen. On the demand side, the rise in spot prices after the Spring Festival inhibits downstream stocking. Although the total inventory has accumulated, the overall pressure is controllable, and the full recovery of terminal demand still needs to wait. (Author unit: Hengli Futures)
Editor: Zhang Yao
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