November 25, 2011

Bitumen Shortage to Ease with Far East Supply to KSA

To alleviate a nationwide bitumen shortage, road builders have resorted to importing a container load of the key ingredient in the production of asphalt.

Last week, an eagerly awaited shipment of 4200t of bitumen arrived on the Tasco 1, a bitumen and asphalt carrier belonging to Tipco Maritime. The cargo was brought in by specialist manufacturer Colas from a refinery in Singapore.

The bitumen load is being divided among Raubex, Much Asphalt and smaller contractors, who have been forced to halt road construction projects because supply of the product has dropped. Workers on site were asked to take leave over the periods when bitumen supply came to a virtual standstill in September and October. The disruption was experienced over 45 days and work was suspended for up to three weeks.
Bitumen is produced at a number of oil refineries, including Caltex, Natref and Sapref. But scheduled maintenance shutdowns and a fire at the Sapref refinery, which caused an unscheduled shutdown, had a serious effect on supply.

Though the constraints have not affected the cost of bitumen, since it is priced at a set rate, contractors’ costs have soared.

Much Asphalt CEO Phillip Hechter estimates that the problem has cost the industry as much as R2,5bn.
Raubex financial director Francois Diedrechsen says the company has had to use the shipment to “make the best of a bad situation”, but that importing is not sustainable .

Bringing the bitumen into the country is expensive and complicated. The product is also slapped with a 10% import duty upon its arrival in SA. Diedrechsen says the duty was put in place to protect local refineries that produce bitumen, but that under the current conditions it no longer makes sense.

He says that road contractors have difficulty storing bitumen, which needs to be kept in temperature-controlled facilities. None of the contractors has this kind of infrastructure. If Raubex did have storage facilities or was able to store bitumen at refineries, Diedrechsen says, it would import large quantities at a time.
Much Asphalt will transport the product to 17 small facilities around the country. Hechter says that were oil refineries to import bitumen and store it at their existing facilities, companies would be spared having to use a ship as a storage facility and incurring costly docking charges. But he believes importing is going to become standard practice.

Diedrechsen agrees, but says that if refineries could indicate to the industry exactly what they intended producing, the industry could make decisions about building the infrastructure to store bitumen. It can’t do this without certainty that local production would not suddenly increase, he says.
Part of the problem, says Hechter, is that the average age of SA’s refineries exceeds 30 years, and that unscheduled maintenance has become more frequent.

To compound the local supply problem, Engen recently exported 4000t of bitumen and so could release a mere trickle of bitumen into the national market, Hechter says.

Bitumen users have been forced to rely on supply from the Natref refinery, which also has production constraints, and a Caltex refinery in the Western Cape, which is far from road construction sites and produces only one type of bitumen, whereas the industry uses three.

Companies have had discussions with the SA National Roads Agency and the department of transport. Were import duties to be dropped, bringing bitumen in from outside would be more affordable.
Sanral CEO Nazir Alli says national roads absorbed about 70% of SA’s total bitumen supply in 2010.

Shortages have a big impact on its projects, as it is used in the final surface layer of a road.
Earlier this year, Sanral considered asking the energy department to declare bitumen a strategic mineral . This would force refineries to maintain a minimum reserve. However, it is unclear whether Sanral will resort to this measure.

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