In August, the domestic asphalt market experienced a strong upward trend, with both spot and futures prices surging in tandem. This price rally was driven by the convergence of four key factors: rising costs, supply contraction, historically low inventory levels, and expectations of peak-season demand.
Spot Market: The mainstream average price of domestic heavy-traffic asphalt rose to 4,593 RMB/ton, marking an increase of approximately 2% month-on-month and a substantial 25.8% year-on-year. The Shandong production region led the gains, with quotes reaching 4,555 RMB/ton—a month-on-month rise of nearly 4%.
Futures Market: The main asphalt futures contract climbed steadily from the 4,100 level throughout August, posting a cumulative monthly gain of over 15%. This performance significantly outpaced that of crude oil, reflecting an additional premium driven by market fundamentals.
Cost Side: Geopolitical Disruptions Raised the Price Floor for Crude Oil
Amid the ongoing standoff between the U.S. and Iran in the Middle East and rising shipping risks in the Strait of Hormuz, Brent crude prices have remained elevated. Meanwhile, shortages of feedstocks—such as diluted bitumen and heavy crude—have driven up refinery production costs, creating a firm cost-support floor.
Supply side: Refinery operating rates remained sluggish, with weak production scheduling.
As asphalt production margins trail those of gasoline and diesel, refineries are proactively reducing operating rates and shifting production; in August, domestic asphalt refinery capacity utilization ranged from only 21.7% to 23.5%, with weekly output dropping as low as 361,000 tonnes—a significant year-on-year decline. Early production data for September indicates continued year-on-year weakness, fostering market expectations of tight supply in the medium to long term.
Inventories continued to decline, remaining at multi-year lows.
Both factory and social inventories have seen consecutive drawdowns, with the year-on-year drop in social inventory approaching 50%. Amidst these low inventory levels, refineries and traders are strongly inclined to hold firm on prices; spot market volatility has intensified, meaning even a minor supply shortage can trigger a rapid surge in price quotes.
Demand Outlook: The "Golden September, Silver October" Peak Season Approaches
Actual operating rates in the spot market remained subdued in August, as rainfall in the south hampered construction activity and downstream buyers largely limited purchases to immediate needs. However, with the traditional road repair window in the north approaching, expectations for stockpiling related to infrastructure and maintenance are rising; capital markets have begun pricing in the peak season outlook ahead of time, driving a rally in futures prices.
The overall picture shows weak supply and demand but a bullish outlook:
Bullish factors: Strong volatility in crude oil prices, refinery production cuts, extremely low inventory levels, and the peak construction season (September–October);
Bearish factors: High spot prices dampening downstream purchasing, tight funding for local projects, valuation pressure should oil prices pull back, and intermittent construction slowdowns due to typhoons and rainfall.
Market Outlook
As September marks the traditional peak season for construction, asphalt prices remain supported by fundamentals characterized by limited supply growth and low inventory levels; the market is likely to see high-level volatility with a bullish bias. Key risks to monitor include Middle East geopolitics and crude oil price fluctuations, the actual pace of road construction starts in the north, the timing of production restarts at independent refineries, and negative feedback from end-users due to high prices.
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