Written by: Mohsen Varzeshkar
Accurate and complete study of the conditions of the Iranian bitumen market in 2021-2022 requires the documented and reliable statistics and data about the production of vacuum bottom (VB), bitumen production, exports and domestic consumption, but unfortunately the lack of this information is always an issue which has caused decision makers to rely only on some approximate statistics and estimates based on conjectures and assumptions for key decision makings related to the industry. In this study, the cases are analyzed and presented based on the information available in the Iran Mercantile Exchange, Codal site and other available sources.
Vacuum bottom (raw material for bitumen production):
As a raw material and feed for bitumen factories, VB has special importance in the bitumen business, so that this product can be considered as one of the key success factors of the top companies in the industry. Unlike some process-oriented and production-oriented industries, companies in the bitumen industry will be successful if they are able to supply raw materials (VB) sufficiently, at an optimal price and in the best time; Therefore, it can be said that in the bitumen business, the supply of raw materials and sales are the main points of the business and not the production and its processes.
Despite this, one of the key shortcomings of the bitumen industry is the lack of clear information on the exact amount of VB production in the country, part of which is offered by refineries in the IME and the other part is allocated to relevant agencies and institutions according to the government decision. It is worth mentioning that since part of the VB produced by refineries is used in the production of fuel oil, so the policies of the Ministry of Oil and the National Iranian Oil Refining and Distribution company in terms of allocating VB to fuel oil production can affect the amount of VB supply by refineries so that in part of 2021-2022 the refineries mostly focused on fuel oil production because of weather conditions and gas production issues.
Fortunately, considering the database of the IME, the amount of VB traded in the country's refineries can be counted. Comparing to the year before, the statistics show the decrease of 13% in VB deal in IME, so that 6,308,000 tons of VB deal in 2020-2021 has decreased to 5,508,000 tons with reduction of 800,000 tons. Tehran refinery with a decrease of 36% and then Bandar Abbas refinery with a 20% decrease in the amount of VB traded in the IME, had the largest share of this decrease in the amount of VB reduction.
| Domestic VB Pre-Sale by Refineries (ton) | |||
| Refineries | 2020-2021 | 2021-2022 | Deviation |
| Bandar Abbas | 1,980,500 | 1,590,200 | -20% |
| Isfahan | 1,840,000 | 1,675,000 | -9% |
| Tehran | 1,047,190 | 672,700 | -36% |
| Arak | 271,750 | 519,900 | 91% |
| Abadan | 450,150 | 415,500 | -8% |
| Tabriz | 363,120 | 305,840 | -16% |
| Shiraz | 355,550 | 325,550 | -8% |
| TOTAL | 6,308,260 | 5,504,690 | -13% |
Of course, it is worth noting that with the implementation of the government agencies share law from the early second half of 2021-2022, refineries were obliged to deliver VB in accordance with the percentages specified in the budget law to the relevant government organizations; however accurate statistics about the amount of VB actually allocated to them and transferred to bitumen factories and has changed to bitumen are not available, so that a vast part of VB allocated to those organizations still has not changed to bitumen and stored in refineries or bitumen factories’ tanks due to lack of required conditions and facilities in projects and infrastructures.
It is notable that one of the main reasons for the increase in competition in the supply of VB on the IME is the decrease in the supply of VB by refineries, so that despite past years, due to supply reduction, there was still competition in VB supply even in bitumen low demand time.
Other notable items in the VB deals in the IME in 2021-2022 were the aggregation of pipeline and tanker supplies, as well as open auction bidding, and both of which had impacts on increasing competition in VB supplies.
Competitive prices of VB in IME, which led to the sale of VB at prices higher than the base price set by the Refiners Association, has led to an increase in bitumen prices in the domestic and export markets and on the other hand more profits for refiners.
The other point in the field of VB supply of the country's refineries is the trading of more than 95% of the total VB supplied, while this ratio was 93% last year.
| Year | Supplied VB | Traded VB | Percentage |
| 2021-2022 | 5,763,800 | 5,504,690 | 95.3% |
| 2020-2021 | 6,781,100 | 6,308,260 | 92.9% |
Bitumen Deals:
According to the statistics available on the IME website, in 2021-2022, a total of 4,902,921 tons of bitumen were offered on the IME, which has decreased by about 10% compared to 2020-2021. Of the total bitumen supply in 2021-2022, 4% was in the domestic market and about 96% was in the export ring.
In total IME transactions, Jey Oil Refining Company has the largest market share and in terms of production and sales in 2021-2022 has been the largest producer of bitumen in Iran. After Jey Oil Company, Pasargad Company has faced a drop in sales compared to last year and the company's sales have reached less than one million tons.
In the domestic market, Jey Oil Company has the highest sales, and after that, Pasargad is in the second place with a decrease in sales compared to last year.
In the field of bitumen exports; Unfortunately, due to some considerations, the Custom of the Islamic Republic of Iran has not published the country's bitumen export statistics for a while, so the only reliable source for estimating the country's bitumen exports is the information listed in the IME. Since the export of bitumen is subject to supply in the export ring of the IME, producers and exporters are required to supply in this trading institution, but due to some deviations in this process, such as the purchase of bitumen offered in the exchange by the same company (of course with another name and address), the bitumen export volumes listed on this site are not reliable statistics. Also, in terms of price, due to the obligation to trade and contract in Rials, due to the lack of the required mechanism to use foreign currencies in the exchange room of the IME, the prices offered are not valid and the announced estimates of the price of Iranian exported bitumen are just based on what heard in the market.
According to available information, Jey Oil Company has 23% of the export market share and is the largest exporter of bitumen in Iran in 2021-2022, and Pasargad Company, despite the decrease of 80,000 tons of export sales compared to 2020-2021, amounted to 20% of the export market share. And the share of other private companies in the total export market has been about 57%.
Another point in the field of bitumen exports is the increase in the volume of bulk bitumen exports of Iran compared to the barrel from Bandar Abbas in 2021-2022, so that according to available information, over 1,600,000 tons of bulk bitumen has been exported from Bandar Abbas.
It should be mentioned that due to the country's lack of logistics fleet for transporting bulk bitumen, unfortunately, most of the profits from the export sales of bulk bitumen to end users have not been provided to Iranian exporters and a limited number of foreign intermediaries benefit from it.
In regard to Turkish market, which has always been one of the main export destinations of producers in the region of Azerbaijan in recent years, due to the ban on the import and transit of Iranian bitumen by Turkey, exporters and producers in this region have faced issues, however the transit of Iraqi bitumen to Turkey is being done by some bitumen market participants in the region.
The presence of Iraqi bitumen in the Iranian market and its export from the borders of Iran has sometimes challenged the export prices of Iranian bitumen, so that the recognition of this type of bitumen along with Iranian bitumen, has made more options for customers of Iranian bitumen market.
The law of bitumen allocated to government agencies:
Despite all the pros and cons of this law, this section was finally included in the budget of 2021-2022 and was implemented from the second half of 2021-2022 due to delays in drafting its code of practice and several stages of changes in the relevant methods.
This law can solve some of the problems of providing bitumen in the country's construction projects, provided that the operational and administrative defects are eliminated, as well as adequate supervision by the relevant agencies. But, if not enough attention is paid to how to allocate VB to organizations and the work of delivering their VB to the bitumen companies and also how the bitumen is delivered to the projects and monitoring its implementation can cause some deviations from the specified goals.
It is notable that the obligation of refineries to deliver VB to the specified institutions in the form of this bitumen law can also be considered as one of the reasons for reducing the supply of VB and consequently increasing competition and prices.
In the end, considering the international and domestic conditions, it seems that the bitumen market in 1401 will be affected by the following items:
- 1. Allocation of the remaining part of the bitumen from the year 2021-2022 law of bitumen for government agencies and implementation of this part of the law in the budget of 1401.
2. Obliging bitumen exporters to sell foreign currency in the NIMA system and the impossibility of using other methods to meet foreign exchange liability.
3. Increase of demand in export markets due to the elimination of most Covid restrictions in target markets
4. Continuation of the process of changing the model of exporting Iranian bitumen from barrels to bulk
5. Lack of demand compared to supply in the VB market
6. Exchange rate fluctuations impacted by the outcome of political negotiations
7. The price of crude oil and consequently the price of fuel oil affected by international events and news