Iranian bitumen production fell by an estimated 22pc during March-August, faced by the double whammy of higher costs of production and persistent weak demand from key markets.
Iran's VB feed sales volume fell by about 22pc from 2.962mn t to 2.314mn t between 22 March and 22 August 2021 compared with the same period last year. As a result, bitumen production also fell by at least about 22pc during the same period.
Meanwhile, bitumen sellers have seen weak demand in domestic as well as regional markets. Producers have also seen an increasing squeeze on margins on the rising cost of VB feed prices. This, coupled with stronger high-sulphur fuel oil (HSFO) economics, has resulted in higher production of fuel oil and has reduced export volumes.
"We reduced trading activities for bitumen as there is no profit margin, and have switched to other products," said several local traders.
"As a producer, we have faced losses over the past months and were forced to sell our cargoes only to pay our debts from purchasing VB feed that was bought earlier," said several producers.
As a result, the number of companies trading or selling bitumen within Iran has fallen over the past few months.
A gap was seen in buy-sell expectations as higher offers based on higher costs of production were rejected by buyers from key markets. This was further underpinned by the impact of Covid-19, which resulted in issues with government funds and slowed paving activities in recent months.
"We purchased VB feed at 70,274 rials/kg [$285/t] and produced bitumen at $315/t fob, including storage and VAT costs, but we have sold without any profit," said industry participants. The government did not give a tax rebate to many exporters in the past two years and imposed a bitumen export tax from March 2021 onwards.
Bitumen prices were assessed by Argus at $284/t fob on 24 September, while drum cargo prices were assessed at $345-360/t fob.
Prices for HSFO 380cst were at minus $36-38/t versus fob Middle East basis. HSFO 180cst in bulk sold at minus $27-29/t and on flexi-tanks basis at minus $20/t against fob Middle East prices. Buying ideas for bitumen from Iran were in the range of minus $120-150/t on HSFO 380cst fob Middle East basis over the past few months.
VB feed supply fell by 21pc from 3.24mn t to 2.56mn t between 22 March and 22 August this year. This was supported by a possible move by Iranian refineries to increase fuel oil production because of higher demand, in contrast to weak demand from bitumen producers.
On the other hand, Iran's bitumen exports in August slid by 32pc compared with a month earlier and was 48pc lower year-on-year amid low demand from Asian markets. Exports fell to about 221,730t in August, down from 326,000t sold in July. Meanwhile Iran's export sales stood at 431,000t in August 2020, according to data from the Iran Mercantile Exchange.
