Mediterranean Bitumen: Ending the year on a high

Well, hello and welcome to our podcast on Mediterranean bitumen markets. My name is Jonathan Weston. I'm the Europe and Asia bitumen lead and editor of the Argus bitumen report, which goes out each week. And I'm joined here by our Europe Africa editor, Kay Van Hedvert. And we want to talk to you about Mediterranean bitumen market, want to look at pricing and some of the interesting trends that we see at the moment.

So without further ado, it's good to launch straight in. I mean, usually the winter is very much a low season and prices are depressed. But this year has been much more interesting. And as we head into the end of the year, we've seen some surprising... moves in the market in the Mediterranean. And we've seen also, you know, significant support for prices in the Mediterranean region. So I hope Skaban, you want to talk a little bit about that?

Yes, indeed. It's not something you expect. You expect by this time that everyone will be winding down activities in terms of construction, road building, demanding bitumen, whether in trucks or in cargos. across the Mediterranean and Black Sea markets as well, whether it's North African markets or European Mediterranean markets like Italy and Spain, or of course, countries like Romania and the Black Sea region.

You'd expect them to be slowing down quickly and winding down and to be a surplus of product because refineries generally have had their maintenance shutdowns during the autumn period. and they're probably producing pretty well. These days, refineries are producing very well because they try to maximize... essential products like diesel in the face of the sanctions on Russia and all the refineries are trying to maximize that production themselves.

brings up you know that raises refinery utilization and and at the same time increases bitumen production so you've got high bitumen production relatively and in most places anyway And at the same time, you would expect to see much lower activity and demand as we head into late November and into December, which we are in now.

But what's happened is that there's been refinery issues and restrictions which have really limited supply. And at the same time, there's been reasonable demand levels more than you would expect, perhaps. in North African markets and some of the Black Sea markets as well for the time of year. So the most notable of those refinery issues has been at...

Sonatrax Italian refinery at Augusto in Sicily, which has had a lengthy shutdown, prolonged shutdown, which has really... all but stopped, you know, bitumen cargo loadings from there to key markets like Algeria, a major import market, as well as other markets in North Africa like Tunisia.

And so on. So that, along with in Spain, there's been a lot of demand domestically because there's been a lot of construction activity and spending by the government in the autumn period. So there's been a lot of demand internally for bitumen and the refineries. there of Repsol and Mueve have been trying to meet. that demand, as well as also significant demand also for much of the period into Portugal. They've also actually been trying to, again, by maximizing diesel.

They've actually, in many cases, restricted the production of bitumen because they've geared their refineries more to those products. But so all the combination of those things, and also there have been US sanctions, of course, related to Russia. on some vitamin-producing refineries which have Russia links, like the NIST refinery in Panchovo in Serbia.

and the luke oil refinery in Burgas in Bulgaria. Because of those factors, the US sanctions have been imposed on them, and so they're barely producing anything, and certainly not bitumen, and not exporting it. So for a whole... All those factors, supply factors together, along with another sort of unexpected fire and much reduced production at malls, Zsa Zsa Lombota refinery in Hungary.

All those factors have really limited supply and also supported, you know, and supported values, which, of course, in the Mediterranean, like in the north for Northwest Europe in cargo markets, everything is priced. against fuel oil, high alpha fuel oil. And by this time of year, you'd expect sort of, you know, fob. values in the med like greece or italy or turkey etc uh to be at you know 20 25 a ton discounts you know to um to uh to the fob

Mediterranean high sulfur fuel or cargoes, but now at the moment we have them roughly around flat to those fuel values. So that just illustrates the strength, this unseasonably strong sort of state of the markets in the Mediterranean. I think this time a year ago, the differentials were around minus 20, weren't they? Something like that. This time a year ago. And now we have this potentially unusual situation where, you know, values in the north from Rotterdam are, you know, the most maybe...

plus five to high sulfur fuel oil, and from Greece, you know, we're just above flat in some cases. Do you think there's a likelihood that the Mediterranean values, you know, those differentials could actually overtake what's in the north over the next month? It can do, I think. Already some indications this week in the market of even values around flat, not confirmed yet.

We have a publication weekly, which comes out on each Friday. So that's Argus Bitterman report covering European, African, Middle East and Asia Pacific markets, but currently from the South. soundings we've had so far this week we have already some indications around flat or even below flat but maybe others will say different but uh yeah in in terms of fob rotterdam cargo values relative to fob rotterdam high sulfur fuel barges um so we need to region the

the price is differential to that regional fuel oil. So yes, they could well be coming in line with each other and potentially the north could very, very unusually be below the med because in the north basically there's been much more of a... typical approach to winter. Much more rain, much more snow in many places, Central Europe, Northwest Europe, the Nordic region. It's clearly very cold.

in many areas and a lot of work has been wound down. So yes, that is really feeling the real winter effect. And even when there are a couple of refinery shutdowns, again, well, not one of them unexpected, Brunsbüttel in North Germany of Total Energies refinery has had a lengthy shutdown.

And then there was a planned shutdown of Shell's Goldorf refinery in Western Germany. Those shutdowns haven't had any kind of... the kind of impact that there's been in the med uh one because there's not that many shutdowns there's a couple of them and two because um uh because of the demand has been falling off quickly

So, yeah, so it's a different situation in the north, and that's why the values are in that way. Yeah, because we've seen from Spain as well, as you mentioned, I think quite a limited... export supply with strong domestic demand seen in that Spanish market and I think our differentials last around plus tens already above those of Rotterdam but really the powerhouses of supply in the Mediterranean are from Greece.

Mostly, we've seen. How do you see that supply dynamic? There's been a lot of supply there in Turkey to a lesser extent. Yeah, the supply, I mean, it seems like, yeah, certainly as the year has progressed, and especially in the second half of the year. Greece has been a very major sort of balancer in the region to balance supply with demand. It's been the... source of production that has made up for the lack of supply or reduced supply from Italy and Spain.

And Turkey has been going along pretty stable, really. But it's Greece, particularly Motor Oil Hellas, major between producing refinery in Corinth. which has been running flat out and really even above nameplate capacity since it came back in August from, you know, one of the crude distillations. One of the crude distillation units there came back from a nearly year-long outage caused by a major fire last year. But since August this year, it's been running flat out and even beyond.

nameplate capacity, and there's been a lot of bitumen production, and as well as from Hellenic Energy, its Aspropyrgus refinery, also in Greece. So these refineries have produced well above what they did last year, and they've been able to make up for the shortfall elsewhere. But of course, in so doing, people have had to pay more to obtain that product because there's been a lot of demand, competitive demand for that product and loading that product from those.

The supply points, of course, has been the continuous demand out of Turkey, the two press refineries at Izmit and Izmir. And now there's a new source also of Iraqi-sourced bitumen trucked from Iraqi Kurdistan. particularly the Lanaz refinery there, which is going into the Cehan area, southeastern Turkey, for a firm called Transmed, a private Turkish firm, which is handling exports.

supplies from Dortiol terminal, which is in that Cehan area in the southeast corner of Turkey. And now we've had the first cargo coming out of there in the last few days. and heading to a Mediterranean destination. So much more of that is expected.

coming months and year ahead. So we're going to have a lot of Turkish supply overall because of this new, you know, if you include the Iraqi sourced in the coming year. And also we're going to have, I think, continued high production and supply from Greece.

Of course, we also expect Augusta to come back. It's just, yeah, I think probably mid-December. It's supposed to come back after sort of being pretty much halted for the last month or two. And yeah, we'll see what the shape of things are next.

year in terms of spanish production and supply but uh but yes there is uh eastern med has become a very important source of supply not your typical december then we would normally see such a Such a slow market, and I think typically supply from the European Mediterranean is headed into North African locations, hasn't it? And we've seen, I think, quite...

Quite strong numbers from Algeria. You know, it looks like this year more than 600,000 tons would be imported into Algeria, which has been growing and consistent over the last three years. Into Morocco, over 400,000 tons last year. And that, I think, is growing. They have into the World Cup tournament, I think, 2030. So that's a growing area of demand as well. There's been other interesting areas this year as well. We've seen a bit more into going into Libya as well.

I think 200,000 tons, something like that. Yeah, it's about 200,000 tons. There was a lot of major push into Libya in fits and starts during this year. But it was threatening to go well beyond 200,000 tons.

compared with maybe about 190,000 tons into Libyan destinations last year. But it's actually, in recent weeks, it's slowed down now. And it seems the year is, in that country at least, is slowing down. But I think we're going to get... to yeah we will definitely expect to exceed the 100 or just on the 190 000 ton into Libya last year so it could pretty much push 200 kt but not much beyond that

And in Algeria, I mean, some figures from Kepler, for example, I know the different vessel tracking analysis companies, but they have it already as for Algerian imports as much as 750,000 tons this year already. So that's well up on last year and upwards of 450,000 tons so far into Morocco. And as you say...

Morocco is preparing to host, first of all, the African Cup of Nations football tournament from late December into late January, which they've done a lot of work ahead of, construction and road. but also, of course, more in a bigger way. We are jointly hosting the World Cup in 2030 with Spain and Portugal. So a lot of this work is going on across the country, loads of projects which are really pushing up demand there.

So yes, that has been happening and that will continue. Morocco will continue to be a strongly growing market. Algeria, I think, will remain strong and Libya will also remain strong or get stronger. Again, a lot can be... can change in Libya. A lot of uncertainty is political.

and other in Libya. So we'll see. But yeah, there's a lot of positives right now in demand terms in the Med. But they will quickly, they will slow down. Of course, there is more rain at this time of year in the North African countries. There's been a lot of rain recently in Algeria. The Moroccans I think are preparing for this sort of AFCON event.

And apparently slowing down work already from now. And they may be coming to an absolute halt when the actual tournament is underway. But yes, we are going into winter. That winter effect will come.

but it's been far more delayed than as usual. Yeah, definitely interesting. I mean, one feature of the market that we did see, perhaps, you know, Four years plus more was the arbitrage to the United States, but all of the Americas, in fact. And that, over the last two or three years, I think, has really slowed down. We did see that, you know...

Potentially reopened this year, didn't we, in August, September time. And the spread between Mediterranean and U.S. supplies was around $50 to $60 a ton, making that workable for some. But that, I think, has closed now, hasn't it? Yes, it has. There was a time a few years ago that there was about a million tons a year was going from Europe to the US. And now it's just, I don't know how much we had. I think we probably had to.

A couple of hundred thousand tons probably this year, something like that, I would say. Two, three hundred thousand tons maybe. But yeah, there was a burst of activity in that August-September period. There were some, you know, expectations perhaps that... when the US removed the waiver, there had been a waiver to allow Venezuelan asphalt, as they call it in the Americas, or bitumen, as we call it here, to...

flow from Venezuela to the US. There had been a very large flow from there to the US, but then that waiver was removed at the end of May. And after that, everyone thought, oh, yes. How is the market going to compensate for those volumes? And in the end, it turned out that there were enough sources of supply within the U.S., from Canada, and from South America, particularly Colombia, to meet those requirements. But yes, it did help to bring about some of this flow from Europe.

It didn't last long. But yes, I think fundamentally, partly because the MED has been pretty strong and partly because the US hasn't been as strong as it could be. It's not been a big flow and the prices have not, you know, been suitable. You know, it's been... prices in the MED, MED is the source of those cargo flows, have been too high, really, to allow for, you know, to make them attractive for US end users to import the product. Yeah, for sure.

And of course, to Asia, it's not really possible that arbitrage has been shut for a long time. But we also, you know, potentially see some demand, good demand into West Africa, I think, growing now. They're long. rainy seasons come to an end and we see some demand there and there's also certain interest from south africa which can source from a variety of places including the mediterranean and and the mid-east of course and other areas but those those areas are they are they soaking up any

More of the available supplies? They're soaking up more. Yeah, the West African rainy season pretty much ended like end of October, beginning of November. And there has been a reasonable flow, but not a big increase yet. I think people are waiting for a substantial increase to happen. But yes, there has been more attractive to bring cargos to West Africa, and there's one particularly large. like 30,000 deadweight town tanker in the traffic Eurofleet, the blacksmith, which is right now sailing.

you know, from after loading in Turkey, sailing along the West African coast. We don't know where exactly it's going to. Maybe some into West African locations, some maybe into South Africa. So yeah, South Africa is a very important growing market as well. because the last refinery in South Africa that was producing bitumen... finally stopped that bitumen production, the Natref refinery in Sasolberg and all the other refineries either were fully shut down in South Africa.

or the refineries that were left stopped producing bitumen. So now there's no domestic bitumen production in South Africa, a major market, from where also supplies are made by truck. into regional neighbors in southern Africa, whether it's Mozambique, you know, Zambia, Namibia, etc. So, yes, there will be more of a... draw to that region.

But for now, anyway, many of these markets like Nigeria, South Africa, will soon go into a sort of festive season lull. It's quite a period of recess from pretty much from mid-December to mid-January, where they pretty much most... stop, you know, and then they start again 10, 15 Jan maybe. So it's going to be, you have to wait a bit longer really to see the full effects of these markets.

Again, drawing in volumes from what remains, during what remains of the winter season and the winter low demand season in Europe. So yeah, that's how it is, I think.

Good. And of course, as we said at the beginning, in the bitumen report, these are markets that we track very closely, and we include a lot of data on vessel tracking and information on those, and freight rates as well, of course, something we watch closely, and those differentials to fuel oil for. you know, Mediterranean and Northern European markets. And we've actually just updated our Mediterranean bitumen index as well at the start of November. So that's now become

and pulling in an average price across the whole region, including Spain, Italy, Greece, and Turkey, to form one index that can be used by market participants as well. So we've updated that, which creates a more relevant price for people to use in that region. But we should look ahead as well. I mean, at the moment, a lot of people are discussing, I think, the term deals and arrangements for supply into next year. And everybody wants to know the outlook for next year.

A lot of European countries, it's been a very tough three or four years since COVID. And we see in Italy a drop in consumption and Northern Europe as well. A lot of countries like France down about 25%, I think, the last three or four years.

What can we say about some of those deals and things about the outlook that we might see into next year's paving season? Yeah, I mean, in terms of term deals, the biggest ones that are sort of publicly known about... term deals which are contractual deals for the coming year in the Scandinavia or the Nordic countries into Sweden into Finland into Denmark and so on and Yeah, I mean, some of the main construction companies in that region, Piab Asphalt, NCC, Weideker.

and others are engaged in completing their agreements on these time deals. We know that Shell, for example, has, you know, from various sources, one sizable chunk of some of these tenders and companies like Total Energies. And Traffic Euro will be competing hard for share as well. All-in has a lot of production expected for next year, about 600,000 tons a year.

the Olen Lietuva, which is in Lithuania. It's Majeku refinery. And so they will be offering, and they haven't completed their discussions on term deals for 2026. So all that is still to come and to emerge fully. Meanwhile, there's been other deals completed into the UK and Irish destinations. Again, Shell and others have been involved in some of those. and ExxonMobil as well. And of course, we have a major new development in terms of the 60,000 ton terminal at Antwerp, the ATPC terminal.

which is currently run by VTOL, has been for many years, a major international oil company, which is very big in the bitumen market. And that's going to be replaced by another major bitumen company, Rubis Asphalt. who is now going to be taking over that terminal, operations of that terminal from the beginning of 2026. So we'll see a different flow, a different dynamic when this new company, which is Rubis, which is mainly...

involved in West Africa up until now, West Africa to some extent in the Med, but now is going to be a major player in Northwest Europe. So we'll see what dynamic that brings about. and how VTOL will then compete for those markets in a different way from having a major terminal in the region. So that is still to come. But in terms of the actual outlook for demand, I think we have many of these Nordic countries, particularly Denmark and particularly Sweden. have a very sort of strong...

They've had a strong demand picture this year. There's been a lot of government spending on lots of infrastructure projects and road and highway projects, and that's expected to continue. There's going to be, should be a strengthening demand as of this year, next year too, into those markets.

But of course, as I say, some of the major sort of traditional markets, you know, major players like UK, France, Wuhan, France in particular, have been quite lackluster for some years. There's just not enough money. There's not much money coming into infrastructure. There wasn't much sort of, you know, much largesse from Rachel Reeves, the chancellor.

of the Exchequer in the UK to various areas, including an infrastructure in her budget lately, although there were some positives in terms of go-aheads for airport runway projects. of course push for easier planning permission uh for for projects as well for construction work on housing and so forth uh so yes so that's i'm positive there right in france of course

It's such a chaotic picture, really. The French people we talk to say that themselves in terms of no real government constantly changing and they're still waiting for the budget for 2026. It has been proposed by the... government of Prime Minister Lacornu, but it's still not approved and a lot of disputes about it, a lot of different political factions. So, yeah, a lot of sort of negatives in some of these key markets. But Italy also has remained pretty weak.

As I said, Spain has been relatively strong. But yeah, overall though, the demand picture overall across Europe is likely to be pretty stable, I think, if you balance everything out next year.

And one particular buyer into that UK island area has told us that some of the values they've heard of or they've been involved in in terms of term deals for 2026 have been... you know, three or four dollars a ton below in terms of differentials to fuel oil, three or four dollars a ton below what they were for 2025 deals, which they said...

reflected the weaker than expected outlook for 2026 than what they had seen earlier this year. So that has shifted again. Every year, I think, since COVID, it's been... expected that things are going to improve markedly, but it just has every year there's just not been enough money being budgeted for that kind of activity. Yeah, that's true, isn't it? And we see Scandinavia one of the bright spots.

when the weather's been better and that the governments have given good support to infrastructure and seen it as a key part of that. And we've seen that in Germany with a new government. There's been some better indications there.

of an increase in consumption activity where the government's there kind of formed a government unable to allocate spending there. But obviously other countries, that's been more challenging. So the outlook next year, I think, could be quite mixed still in Europe. But many people are hoping that we'll reach there.

the bottom for demand for some of these countries after so many years of underfunding. So we should finish up really looking ahead as well. I mean, for us as well, next year, we get together. for our annual European conference, which will be in Athens next year, 19th to 21st of May. And it'd be great to see you. We'll also have our Asia Pacific conference, which will be in Singapore in September.

And during International Energy Week in London in February, we also have an event as well, don't we, for that? So we'd invite people to come along there. Yes, 10th of February, come to the Bitumen Breakfast. A nutritious breakfast, but mainly for networking purposes. I wouldn't eat any bitumen if I were you, but yes, I think it'd be a good idea to come along as people do in quite large numbers. We'd typically get 90 or 100 or so people to just come.

to chat or network early in the morning on that day. And this year, this coming year is going to be 10th of February. So yes, that's also going to be a very good place for you to come and to see for yourself how things are shaping up. Okay. Well, thank you very much, Kevin. Thanks. Thanks, Jonathan.