Bitumen Industry’s Sticky Situation

Iran’s bitumen industry is plagued by a lack of steady supply of raw materials and varying quality, causing the industrial material’s exporters to lose ground in international markets.

India, which accounts for about 50% of Iran’s bitumen exports, has repeatedly raised concerns about the variable quality of Iranian shipments.

Experts believe the disparity in vacuum bottom supply alongside output overcapacity are the main causes of reduced bitumen quality and increased finished prices, Financial Tribune’s sister publication Donya-e-Eqtesad reported.

“Certain producers have access to direct and unrestricted supply of vacuum bottom from petroleum plants. While they purchase raw materials outside of Iran Mercantile Exchange, other producers have to compete and end up paying more at IME,” said Hamid Hosseini, the head of board of directors at Iranian Oil, Gas and Petrochemical Products Exporters’ Association, emphasizing that the 5-million-ton annual vacuum bottom supply on IME is not enough for all producers.

Hosseini noted that privileged producers with direct access to raw materials also shun IME’s transparent trading mechanisms and predominantly make purchases from outside the commodity exchange.

Dealings by middlemen in this unofficial market increase final prices and make them uncompetitive.

While grappling with vacuum bottom shortage, the industry’s situation is exacerbated by the new capacity expansion permits issued by the government.

“The government has so far issued permits for adding 17 million tons of bitumen output capacity, while the current annual 4-5 million-ton capacity has yet to be fully utilized,” he said.

Hosseini lamented that the mixing of gilsonite, vacuum residue and mazut with genuine bitumen is a fraudulent practice undertaken by certain producers looking for a bigger piece of the pie, emphasizing that this has cost Iran its market leadership in the world.

“We lost the Chinese market in recent years and CIS importers have turned to Turkey to meet their demand,” he said.

The agreement reached between Iran and India’s market regulatory organizations last week can be asolution to the industry’s woes.

Indian traders will soon be able to purchase bitumen directly from Iran Mercantile Exchange, as per the agreement signed between Chairman of Securities and Exchange Organization of Iran, Shapour Mohammadi, and Chairman of Securities and Exchange Board of India, Ajay Tyagi, in India.

The development can help the industry with most of its issues, as offering bitumen to Iran’s largest client on IME will remove middlemen and regulate the quality of products.

According to Hamed Soltani-Nejad, IME’s chief executive, the agreement had been in the marking since February and its delay was due to the banking system limitations and India’s insistence of using rupees in transactions.