US asphalt prices continue to sink amid a soft crude market, and hit multi-year lows in December, reports Argus Media.
Prices should rebound next year with demand set to pick up, recovering slowly as the market must first contend with the highest stock levels in at least five years, according to EIA data.
The sharp correction in asphalt prices this winter followed historically robust margins during the second half of 2015 as suppliers took advantage of a steadily declining crude market to continually lower their replacement costs during the height of summer paving season.
As crude prices continued to fall, buyers of asphalt became increasingly skittish about taking fresh shipments in a backwardated market, and cautiously managed their inventories late into the season, adding to the bottleneck at refineries. Market demand was insufficient to absorb the high level of production as refinery crude throughputs surged on the back of strong crack spread for refined products.
Falling prices could extend further into the winter as much of the market will wait until closer to the start of the 2016 paving season before loading their tanks, especially while underlying crude prices show little sign of stabilizing.
A heavy turnaround season expected in the first quarter will likely impact supply, but it is difficult to determine next-direction as different refineries take down different units.
Arbitrage sales between the US Atlantic coast and Europe should continue as asphalt prices in the
Mediterranean take direction from an ailing fuel oil market. Global trading firms have increased their exposure to the asphalt market, particularly in the Americas, and are expected to take advantage of the growing gap in pricing between the two continents.
Secure long-term funding for the transportation infrastructure sector at both the state and federal level will provide greater demand certainty, something that has been elusive for the last decade. A growing national economy, coupled with the cheaper cost of material, should spur on demand growth in the sector.
Long-term funding at the federal level did not include an increase in funding, lessening the impact on future demand.
Much of the outlook for 2016 hinges on the cost of crude, as well as the density of crude slates that refiners will run in the coming year.