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Global bitumen demand and pricing
Argus Africa Bitumen 2014
Cape Town, South Africa
By
Nasreen Tasker
Vice President - Asphalt, Argus Media
25-27 February 2014
Who is Argus?
• Report every energy
market globally
• Used worldwide in
energy price
indexation
• Independent and owned by
the family of the founder
and by the employees
• Has more than 550
employees and 20 offices
across the globe
Copyright © 2014 Argus Media Ltd. All rights reserved.
Argus corporate governance
• Follow strict corporate
ethics policies
• Enforce a compliance
program with regular
internal and external
audits.
• Compliance with IOSCO’s
Principles for Price
Reporting Agencies and the
IPRO Code
• Publicly available Global
Compliance Policy, Code of
Conduct, and methodology
documents
Copyright © 2014 Argus Media Ltd. All rights reserved.
Argus Asphalt Report
• The Argus Asphalt Report is a
weekly publication covering
international bitumen prices,
including market developments
and industry news.
• Argus assesses spot market
prices by surveying a wide
variety of market participants
including buyers, sellers,
producers, consumers, traders
and brokers.
• It includes information on the
factors which affect and
influence asphalt trade and
prices.
Copyright © 2014 Argus Media Ltd. All rights reserved.
Bitumen history at Argus
• First Argus Asphalt Report was published in March 1998
◦
First and only international report pricing
• Americas asphalt conference
◦
◦
6 events
Next one on 26-28 March 2014 (Woodlands, Texas)
• Europe/Africa bitumen conference
◦
◦
4 events
Next one on 11-12 June 2014 in Italy (Rome, Italy)
• Asian bitumen conference
◦
◦
9 events
Next one on 23-25 September 2014 (Singapore)
• One India bitumen event
• 1st Africa bitumen conference
• Global consulting services on bitumen
Copyright © 2014 Argus Media Ltd. All rights reserved.
Overview
• Global bitumen demand
◦ Factors that impact bitumen demand
◦ Global economic growth
◦ Global demand: How does Africa fit in?
• Global bitumen pricing
◦ Factors impacting bitumen pricing
◦ Bitumen pricing trends
Relationship to crude and HSFO
◦ Global price maps
◦ Evolution in the bitumen market and pricing
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global bitumen demand
Factors impacting demand for bitumen
•
•
•
•
•
Economy
Government budgets for roads
Natural disasters
Unplanned events, acts of terrorism, accidents
Credit
Economic growth leads to more road building
Copyright © 2014 Argus Media Ltd. All rights reserved.
Why look at GDP growth?
• Economic growth contributes to the need for roads
and the demand for roads
• GPD growth provides a peek into the future
◦ Which markets will potentially have bitumen requirements
◦ Potential changes in balances for individual countries
◦ Potential changes in the trade patterns
Copyright © 2014 Argus Media Ltd. All rights reserved.
Data sources
• Economic growth data (historical and forecast) is from
IMF World Economic Outlook Update published in
January 2014
• Bitumen demand data
◦ Country government published data where available
◦ Best estimates based on discussions with market participants
on bitumen demand
Copyright © 2014 Argus Media Ltd. All rights reserved.
World GDP growth
•
•
Global economic prospects have
improved following the drop in
world GDP by -0.4% in 2009
Countries that fared poorly had
large pre-crisis imbalances and
had large output collapses during
the crisis
In 2013, world GDP growth was
3%, down from previous 3 years
◦
◦
Deceleration in demand
Domestic policy tightening
12
Projected
change
9
percent change
•
6
3
0
-3
-6
•
World growth is projected to
increase to 3.7% in 2014 and 3.9%
in 2015
2005
2008
2011
2014
World
Advanced economies
Emerging and developing economies
Copyright © 2014 Argus Media Ltd. All rights reserved.
2017
Advanced economies – GDP growth
Advanced economies fell to -3.4%
in 2009, bounced back to 3% in
2010 and then slowed in 2011 and
again in 2012
•
Growth at 1.3% in 2013
•
Newly industrialized Asian
economies led the pack in
recovery, with strong growth in
2010.
•
Advanced economies with lowest
2013 growth was in the Euro area
9
percent change
•
Projected
change
6
3
0
-3
-6
2005
2008
2011
Newly industrialized Asian economies
Other advanced economies
•
Growth will increase to 2.2% in
2014, with the Euro area reversing
its negative trend
Copyright © 2014 Argus Media Ltd. All rights reserved.
2014
Euro area
United States
Canada
United Kingdom
Japan
2017
Emerging and developing economies – GDP growth
•
•
•
GDP was 3.1% in 2009. Increased
and then slowed down very slightly
to 4.7% in 2013
CIS countries collapsed with crisis to
-6.4%, but 2013 slowed at 2.1%
Emerging Europe was affected by
spillover from Euro area crisis
ME/North Africa and Sub-Saharan
Africa weathered global recession
well
◦
•
North Africa continues to struggle with
difficult internal transition
Developing Asia continues to
outpace others at 6.5% in 2013
12
percent change
•
Projected
change
8
4
0
-4
-8
2005
2008
2011
2014
Central and eastern Europe
Commonwealth of Independent States
Developing Asia
Latin America and the Caribbean
Middle East, North Africa, Afghanistan and Pakistan
Sub-Saharan Africa
Copyright © 2014 Argus Media Ltd. All rights reserved.
2017
Change in GDP: 2013 vs 2014
World
Advanced economies
United States
Euro area
Japan
United Kingdom
Canada
Newly industrialized Asian economies
Other advanced economies
Emerging and developing economies
Central and eastern Europe
Commonwealth of Independent States
Developing Asia
China
India
ASEAN-5
Latin America and the Caribbean
Brazil
Mexico
Middle East, North Africa, Afghanistan and Pakistan
Sub-Saharan Africa
South Africa
2013
2014
3.0
1.3
1.9
-0.4
1.7
1.7
1.7
3.7
2.2
2.8
1.0
1.7
2.4
2.2
4.2
2.2
4.7
2.5
2.1
6.5
7.7
4.4
5.0
2.6
2.3
1.2
2.4
5.1
1.8
4.3
3.0
5.1
2.8
2.6
6.7
7.5
5.4
5.1
3.0
2.3
3.0
3.3
6.1
2.8
Copyright © 2014 Argus Media Ltd. All rights reserved.
Africa and the Middle East –2012 Demand
•
•
2012 regional demand was up
by 8% from 9mn t in 2011.
SubSaharan
Africa
1.3
13%
Sub-Saharan Africa is a smaller
demand market, but has big
growth potential.
•
Big push in Libya and others to
get long term rebuilding going
•
Social unrest, internal
transitions and high
unemployment could impact
short-term growth and
demand
North
Africa
1.9
19%
Source: Argus Media
Copyright © 2014 Argus Media Ltd. All rights reserved.
Middle East
6.7
68%
Total demand: 9.8mn t
Global bitumen demand: How does Africa fit in?
2012
Oceania
1.0
1.0%
CIS and Russia
6.5
6.6%
Asia*
32.9
33.4%
Middle East
6.7
6.8%
Africa
3.2
3.2%
Europe
17.1
17.3%
Americas and Caribbean
31.3
31.7%
Total demand: 98.6mn t
*Excludes the Middle East
Source: Country government data, Argus Media
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global demand overview
• Global distribution has changed substantially over the
years
• Bitumen is a smaller pie in 2012, falling from peak levels in
2005
• In 2012, total demand was at 98.6mn t, down slightly
compared to the prior year
• Europe had the biggest drop of 15.3%, followed by the
Americas at 3.7%
• CIS/Russia and Africa grew
• Demand in 2013 expected to remain at similar levels overall,
with a slight pick up in 2014
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global bitumen pricing
Key factors that influence bitumen prices
• Fundamentals
◦ Demand (covered earlier)
◦ Supply
‐
‐
‐
‐
‐
Refinery economics
Alternative economics
Crude oil prices and crude spreads
Transportation options
Adoption of new grades
• Costs, competition and inventories
Copyright © 2014 Argus Media Ltd. All rights reserved.
Supply Outlook
• Less bitumen production coming from fewer
refineries, but supply is adequate
◦ Bitumen supply reductions despite refinery closures has not
kept up with demand reductions (there is still overcapacity)
• Bitumen will be produced only if economics justify it
◦ Putting pressure on the quality produced
• Refining capacity in Europe has been falling and
refiners are not investing in increasing bitumen
Copyright © 2014 Argus Media Ltd. All rights reserved.
Challenges in pricing bitumen
• Bitumen can be disconnected from the international
crude market
◦ Treated as a byproduct by integrated refiners
◦ Domestic selling prices are slow to respond
• Resistance to changing pricing methods
Copyright © 2014 Argus Media Ltd. All rights reserved.
The bitumen environment has changed
• Better alternatives to bitumen production
◦ Coker economics
◦ Fuel oil economics
• Roller-coaster ride with crude oil prices
◦ Impact on refinery production costs and margins
◦ Changing the mix of asset ownership or refinery closures
Copyright © 2014 Argus Media Ltd. All rights reserved.
The resulting ripple effect
• Refiners
◦ Integrated refiners have to justify bitumen as a business unit
◦ Specialized refiners have to break even
• Resellers
◦ Unpredictability in availability and their wholesale costs
◦ Fluctuating reseller margins
• Contractors
◦ Bitumen costs can fluctuate during the year
◦ Difficulty in quoting long-term road projects
Copyright © 2014 Argus Media Ltd. All rights reserved.
PRICE GRAPHS
All bitumen prices are from the Argus Asphalt Report
All crude prices are from the
Argus Crude Report
Copyright © 2014 Argus Media Ltd. All rights reserved.
Crude volatility and bitumen price reaction
Heavy crude vs Rotterdam bitumen
1,000
USD/t
800
600
400
200
0
Feb-02
Feb-05
Feb-08
Urals NWE
Rotterdam
Copyright © 2014 Argus Media Ltd. All rights reserved.
Feb-11
Feb-14
Bitumen prices lag heavy crude
Rotterdam bitumen diff to heavy crude
480
360
USD/t
240
120
0
-120
Feb-02
Feb-05
Feb-08
Copyright © 2014 Argus Media Ltd. All rights reserved.
Feb-11
Feb-14
Wholesale moves closer with heavy crude
Bitumen price lag effect for wholesale
65%
55%
56%
52%
50%
35%
20%
6%
5%
-10%
-11%
-9%
2%
-11%
-25%
July 11 vs 10
July 12 vs 11
Urals NWE
Med HSFO
July 13 vs 12
Italy wholesale bitumen
Copyright © 2014 Argus Media Ltd. All rights reserved.
1%
Refinery economics determine the path chosen
Copyright © 2014 Argus Media Ltd. All rights reserved.
What do bitumen premiums or discounts off of HSFO
mean?
Copyright © 2014 Argus Media Ltd. All rights reserved.
Move from premiums to discounts
Bitumen wholesale diffs to HSFO
75
50
USD/t
25
0
-25
-50
-75
May-10
Dec-10
Netherlands
Aug-11
Spain
Mar-12
Italy
Nov-12
Greece
Copyright © 2014 Argus Media Ltd. All rights reserved.
Jun-13
Ivory Coast
Feb-14
HSFO a better alternative lately
HSFO Alt Value Med diff to Spain wholesale bitumen
60
USD/t
30
0
-30
-60
Jan-11
Aug-11
Apr-12
Nov-12
Copyright © 2014 Argus Media Ltd. All rights reserved.
Jun-13
Feb-14
Exchange rate fluctuation split the relationship
Middle East bitumen cargo prices
725
USD/t
625
525
425
325
Jan-10
Jan-11
Jan-12
Iran
Bahrain
Copyright © 2014 Argus Media Ltd. All rights reserved.
Jan-13
Feb-14
Global wholesale bitumen prices
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global bitumen wholesale prices: 1 June 2012
Lowest prices
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global bitumen wholesale prices: 31 May 2013
Lowest price
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global bitumen wholesale prices: 11 Jan 2013
Lowest prices
Copyright © 2014 Argus Media Ltd. All rights reserved.
Global asphalt wholesale prices: 14 Feb 2014
Lowest price
Copyright © 2013 Argus Media Ltd. All rights reserved.
Evolution in the bitumen market
Copyright © 2014 Argus Media Ltd. All rights reserved.
Bitumen pricing trends
• Bitumen prices increasingly have to compete with
alternatives
◦ HSFO and coking economics
• Movement towards more flexible pricing techniques
• However, weak bitumen demand is impacting bitumen
price relationships
◦ Historical spreads have changed to stay competitive
◦ Europe bulk prices have moved to discounts instead of
premiums to HSFO
Copyright © 2014 Argus Media Ltd. All rights reserved.
Conclusion
• Times have changed
◦ Volatility is the new constant forcing bitumen to become a
more market responsive product
• Refining has changed from cost center to profit center
◦ More banks and financial institutions entering the bitumen
market
• Relationship building and market knowledge is key
◦ To obtaining adequate supply and the right quality of bitumen
Copyright © 2014 Argus Media Ltd. All rights reserved.
Conclusion -- future
• For a view to the future
◦ Current economics for bitumen
‐ Possible price direction or refineries switching to alternative
products
◦ International wholesale bitumen price comparisons
‐ Show arbitrage opportunities
• Increased light sweet crude availability and crude spreads can
impact production decisions
• But bitumen supply will be available if economics justify it
Copyright © 2014 Argus Media Ltd. All rights reserved.
Thank you
Nasreen Tasker
Vice President, Asphalt
Argus Media
Email: [email protected]
Phone: 203-261-6677
URL: www.argusmedia.com
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Copyright © 2014 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence
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