When demand rises from the ashes of a pandemic, you’d expect both the price of a commodity and freight rates for ships that move it to rise sharply. Bitumen has dutifully followed the first expectation but rebelled against the second.
Bitumen has dutifully followed the first expectation but rebelled against the second.
The Argus fob Mediterranean bitumen cargo price index plunged to a low of just under $90/t fob basis Augusta in late April, but has since shot up to more than $245/t as refinery run cuts mean supply remains tight even as the summer construction season comes out of lockdown. In key north African markets such as Morocco, Algeria, Tunisia and Egypt, the end of Ramadan in late May has added to a sense of demand resurgence.
So why hasn’t the standard 5,000 deadweight tonne (dwt) Mediterranean bitumen tanker market responded in kind — in similar fashion to prices for the road paving product? After a lively start to the year, cross-Mediterranean tanker freight rates for 5,000t cargoes from Augusta, Sicily, to Mohammedia, Morocco, jumped to around $55/t at the beginning of March from $40-45/t in early January, helped along by the costly switch away from high-sulphur bunker fuels to meet IMO 2020 requirements.
While rates on that route have since plunged to $36-40/t, rates from Greek ports to Alexandria, Egypt, have fallen much more dramatically, from around $40/t in early March to $26-29/t now. That has been despite an extended halt to Egyptian state-owned EGPC’s 115,000 b/d El-Mex refinery in Alexandria and a steady stream of current and planned cargo imports into the firm’s terminal there.
Part of the answer lies in a shift in the size of tankers used by trading and supply firms. EGPC last week awarded all nine 4,000-7,000t cargoes under its July bitumen import tender into Alexandria to international oil trading firm Vitol, which also won six out of seven 4,000-7,000t cargoes under the Egyptian firm’s June tender. But instead of using tankers in that size range to meet the June requirements, Vitol opted to use its own 37,000dwt tanker – the Asphalt Synergy – and it was understood to have also used the 12,972dwt medium-sized tanker Da Hua Shan to take the remaining volumes. It has a similar plan to use medium- to large-sized tankers to supply EGPC’s July requirements.
Previous EGPC tenders, from the middle of last year through to the first quarter of 2020, were awarded to a mix of companies including Vitol, BB Energy and Egyptian trading firms Imex and Triumph, with the bulk of those volumes supplied by tankers averaging around 5,000dwt.
Trafigura unit Puma Energy, Vitol and French firm Rubis — global players with tanker fleets dominated by medium- to large-sized tankers — have all played a part in a wider switch away from small tankers. The number of Mediterranean cargoes loaded on sub-7,000dwt tankers nearly halved between December 2019 and May this year, while there was only a slight drop in tankers above 15,000dwt loading such cargoes. The conspicuous absence of smaller cargo flows from the Mediterranean to west African markets — from Mauritania down to Cameroon — since Covid-19 struck has hastened this trend, with large tankers being used instead for those movements, as well as for Mediterranean shipments into Mideast Gulf destinations such as Qatar and Saudi Arabia.
Of course, north African markets such as Algeria, Morocco and Tunisia continue to be supplied by standard small-sized cargoes, while Romania has emerged as a major draw on Italian, Greek and Turkish bitumen volumes in the 4,000-7,000t range.
“When you see ships in a number of fleets just fishing for spot business, it’s bad,” one tanker broker said this week. For another, surveying the scene of idled tankers, the net impact is nothing short of a “bloodbath”.