Challenges of Bitumen Industry_translated

Investigating the Challenges of Bitumen Industry in Iran

According to the report by the World of Petroleum and Bitumen Journal, quoted by Eng. Razavi, the export and import manager of Kasra Bitumen Refining Company, we will examine the challenges of this industry among bitumen manufacturers.

Iran’s bitumen industry is one of the industries that has helped our country in export and importing of foreign currency during the years of sanctions, despite many permanent problems in production and supply of raw materials, logistics, export, and return of foreign currency. We are moving forward to address these challenges one by one.

The most important issue in the bitumen industry is the supply of raw materials, i.e. vacuum baton. Unfortunately, the licenses to establish factories in this industry in the provinces and provincial centers have not been distributed according to supply and demand, so that in recent years due to the logistics and transportation rates, most factories have been moved to the south of Iran in order to have the shortest distance to the wharf for shipping. Thus, some permits have been issued in the Hormozgan province without balancing the provision of raw materials for supply and demand. The big problem with these licenses is that in the future it will be very difficult to supply feed for them. The most important issue in relation to export is the fixed price of bitumen and the competition with other companies in the neighboring countries in order to keep export markets. Unfortunately, with the increase of transportation from the provinces to the ports, a healthy competitive market has practically not been created, and we hope that those in charge, including the Ministry of Industry, Mine and Trade or even Bandar Abbas Oil Refining Company will create a development plan or construct a new refinery in order to solve this problem to some extent. Although it will take a long time to create a development plan and to build a refinery, these measures will generally reduce future problems.

The next issue is ranking. When refineries supply raw materials, if the supplies are commensurate with the market, they offer them in cash and otherwise on credit. They never really keep pace with the manufacturer. The fact that the refineries offer the supplies on credit when the demand is low not only does not help the manufacturer at all, but ultimately leads to the disappearance of a competitive market, because the refineries impose heavy commissions on purchases, which actually raises the cost of raw materials. In fact, the refineries, like banks or other regulatory bodies that provide their facilities with the criteria of ranking companies, may examine the amount of production, exports and financial statements of companies, and consider, for example, grades A to C for companies. They may consider special facilities and services, such as increasing the share of raw materials or reducing the percentage of commissions for companies that have higher quality and quantity than other companies, which ultimately provides a competitive market among manufacturers.

The other issue is related to the added value of buying raw materials, because according to the law, 9% of the capital of a manufacturing company is taken out of the company’s turnover and the company receives the price of this 9% in the next 4 or 6 months. With the existing inflation system, this price will practically no longer have the primary value, and even if the company wants to compensate for this deficit from the bank facilities, it will face 26 to 27% interest rates of the banks, and of course, it must go through the administrative steps of mortgaging the document and valuing it, which is also a time-consuming process that will divert manufacturers from focusing on production and exports as well as their targets.

The next issue is the settlement in the stock exchange. The settlement time in the stock exchange is 72 hours, and considering the banking issues and opening of letter of credit, 72 hours is not a desirable time for the manufacturer to settle in the stock exchange. Unfortunately, brokerages, sellers or the refineries themselves insist that the original three-clause and credit forms be physically delivered to the brokerage. In the last one year, due to the Covid-19 pandemic and the lack of timely flights or their cancellation to the provinces where the broker is located, this creates problems for the manufacturer. “A series of office paperwork should really be set aside to expedite transactions without removing the rules,” Eng. Razavi said.

Another challenge on raw materials is associated with the distribution of sheets. Fortunately, with a lot of follow-up, the Ministry of Industry, Mine and Trade has allowed the import of sheets since 2020, and this problem has been solved to some extent. As you know, the only sheet production company in Iran is Mobarakeh Steel Company with 50 to 60 thousand tons of production per year, of which about 45 thousand tons is only the share of Irankhodro and Saipa companies, and the rest was allocated to the home appliance and parts industry, and finally a small share to the bitumen and packaging industry, so that this amount of distribution was not enough for the bitumen packaging industry. Since 2020, with the help of the Ministry of Industry, Mine and Trade, and the Central Bank, the manufacturing and exporting companies have been able to sell bitumen and use their foreign currency resources abroad to produce sheets.

The next issue that is worth mentioning is the lack of a regulator in the bitumen industry. In practice, the existence of such an institution is necessary to know the prices of both raw materials and products, because its absence will cause unhealthy competition. Initially, some companies might suffer, but in the long run, the absence of such an institution will harm the interests of the country and will obstruct our access to the global markets. We have already lost many foreign markets due to the banking and logistics sanctions, and It may be very difficult or even impossible to regain access to them. For example, in 2012, the country of South Africa annually bought about 120 to 125 million dollars of bitumen from Iran, while today this figure is about 15 to 20 million dollars. Despite the sanctions, because the issue of “Letter of Credit (LC)” has been removed from our banking system and no bank in the world works with us, naturally new customers or new markets cannot trust us.

Another challenge for the bitumen industry is the issue of supply guarantees in the commodity exchange. For the issuance of these guarantees, the company must deposit a certain amount and in addition to the cost for the manufacturer, going through a series of bureaucracy will make this process longer. In this regard, the question arises that the Commodity Exchange which is the supplier of raw materials to manufacturing companies, and ultimately sells the existing product itself may not use strong administrative contracts instead of guarantees, given that the return on investment of manufacturers and the real profit from production is not so much that the manufacturer ignores all these problems, including the added value, commodity exchange guarantee, lack of containers in the country, the problems of the EPL system and the scale, the elimination of LC in the banking system, and so on.

The final issue under discussion is the export from the country’s outlets. In the north and northwest of our country, we had a problem with Turkey, and we will not be allowed to export to this country. On the other hand, low quality bitumen raw materials are imported to Iran and is used in a vacuum baton. This causes the production of low quality bitumen and ultimately the loss of the market, which is being pursued through the bitumen association. In the end, we hope to reach a collective wisdom with redoubled efforts and to solve the problems as soon as possible.