OREANDA-NEWS. Uncertainty over government spending on road projects is likely to continue into the first quarter of 2017, clouding the outlook for the Asia-Pacific bitumen market in the coming months.

Bitumen trade in 2016 has been sluggish. A slowdown in the release of government funding in the region, especially in Indonesia, Vietnam and China, has affected overall bitumen demand. And this is presenting a dilemma for suppliers in southeast and north Asia — should they switch to high-sulphur fuel oil (HSFO) production, or maintain bitumen production?

The uncertainty is expected to continue into the first quarter of 2017. Southeast Asia's leanest paving season is traditionally from January-March, with the exception of Thailand.

Indonesian bitumen demand in 2016 was relatively flat compared with 2015. Most demand in the country comes from the most populated islands of Java and Sumatra. Indonesia's road paving season typically starts around August-September and runs until the end of the year, ahead of the onset of the monsoon. But the country did not see the usual peak in demand in 2016 because of a cut in the government's road infrastructure budget.

Indonesia's imports in January-July surged by 55pc from the year-earlier period to 653,000t. Road projects remain a focus for the country, as president Joko Widido prioritises much-needed investment in the infrastructure sector, but the outlook for funding of the projects remains key to whether demand momentum will pick up in the first quarter of 2017.

Another major buyer in the region is Vietnam, which does not produce any bitumen and so relies completely on imported supplies. But the country's imports are on course to fall by almost 50pc in 2016 from strong levels of 860,000t last year. Vietnam's main supplier is Singapore, which shipped 377,000t to the country in January-September, down by 19pc from the year-earlier period. Most road paving work focused on the north of the country, with details of new projects yet to be released.

Bitumen import demand in the region's main economy, China, has remained slack in 2016 with high inventory levels at many ports in the country. China's bitumen imports in October fell to a multi-year low, dropping by 29.9pc from a year earlier to 267,768t.

China's lower import demand is mainly the result of two factors. Government investment has slowed as the country entered the first year of its 13th five-year plan, which runs from 2016-20. And imports have also been hit by a slowdown as domestic refineries ramp up bitumen production, especially the independent refiners that have started receiving quotas to import crude directly under the government's liberalisation plans.