SunSirs: Crude Oil Prices Continue to Fall; Asphalt Fluctuates at High Levels in Search of Equilibrium

In mid-April, the domestic asphalt market ended its previous one-sided upward trend and entered a phase of high-level consolidation, driven by a combination of factors including falling crude oil costs, reduced refinery production schedules, low inventory levels, and weak downstream demand. Based on the SunSrs’ benchmark price as of April 17 and recent mainstream industry views, the price transmission logic and market dynamics of asphalt and its upstream and downstream sectors are summarized below.

I. Price Trends of Core Products

On April 17, the SunSirs asphalt benchmark price stood at 4,126.67 RMB/ton, down 7.13% from 4,443.33 RMB/ton on April 1, but up 9.75% from 3,760.00 RMB/ton on March 1.

As a core raw material, the market price of Brent crude oil on April 17 was $94.30 per barrel, down 13.7% from early April but up 29.6% from early March; the market price of high-sulfur fuel oil was RMB4,012 per ton, down 9.8% from early April, indicating a significant weakening of cost-side support compared to earlier periods.

II. Core Logic Behind Upstream and Downstream Price Fluctuations

1. Cost Side: Crude Oil Retreats from Highs, Weakening Cost Support

As a refined product of crude oil, asphalt’s costs are highly correlated with crude oil prices, with raw material costs accounting for over 70% of total costs. In March, influenced by geopolitical conflicts in the Middle East, crude oil prices surged sharply, driving up asphalt production costs and causing prices to rise in tandem. Entering April, geopolitical risk premiums gradually faded, and international crude oil prices retreated from their highs. This directly led to a decline in asphalt production costs, significantly weakening cost-side support for prices. At the same time, the tight supply of heavy feedstock eased slightly, and refinery margins improved somewhat, further dampening the momentum for asphalt price increases.

2. Supply Side: Production Schedules Significantly Reduced, Spot Supply Tight

The ongoing tightening of the supply side has become a key support for asphalt prices. In April, total domestic asphalt production fell by 22.4% month-on-month and by over 33% year-on-year. With an increase in refinery maintenance activities, capacity utilization rates dropped to a low level below 20%. Major refineries prioritized ensuring refined oil output, limiting asphalt production; Local refineries, affected by insufficient feedstock supply and profit volatility, maintained low operating rates. Both social and on-site inventories remained at levels below the seasonal average, resulting in tight spot market supply. Companies showed a strong willingness to maintain prices, limiting the scope for asphalt price corrections.

3. Demand Side: Slow Start to the Peak Season; High Prices Dampen Purchasing

Demand remained weak, exhibiting characteristics of a “peak season without peak activity.” Although April marks the traditional peak season for road construction, rainy weather in the south and delayed project kickoffs in the north, combined with high asphalt prices, have led downstream construction firms to adopt a cautious procurement approach. Most are focusing on buying only what is needed and maintaining low inventory levels, with few instances of concentrated restocking. The slow pace of funding disbursement for road construction projects has resulted in weaker-than-expected release of end-user demand, limiting the upward pull on asphalt prices and serving as the primary factor suppressing price increases.

III. Core Market Characteristics and Impact on the Industry Chain

The current asphalt market exhibits a fragile equilibrium characterized by “falling costs, tight supply, and weak demand”, with prices constrained on both the upside and downside. Declining costs are driving price corrections, while supply contraction and low inventory levels provide support at the bottom. Market sentiment has turned cautious, with few high-price transactions and transactions primarily driven by essential demand.

Profit distribution across the industry chain is undergoing adjustments. Upstream refineries have seen relatively stable overall profitability due to improved margins on refined oil products and reduced asphalt output. Downstream sectors such as road construction and waterproofing materials face significant cost pressures, with profit margins squeezed; some small and medium-sized enterprises have slowed construction progress, and industry utilization rates are rising only gradually.

IV. Market Outlook

In the short term, the asphalt market is expected to maintain a high-level consolidation pattern with range-bound movements. Volatility in high crude oil prices will continue to dictate cost trends, while refineries’ low production volumes and low inventories provide a floor for prices. However, the slow recovery of downstream demand will limit upward momentum, making significant price fluctuations unlikely.

Overall, the asphalt market is currently in a phase of tension between costs and supply-demand dynamics. In the short term, high-level fluctuations will prevail, while the medium-term trend will depend on the pace of demand recovery and the rhythm of supply restoration. Against the backdrop of expectations for gradual improvements in supply and demand, prices are expected to gradually stabilize amid these fluctuations.

SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.