Struggling traders find salvation in bitumen

Vitol Group and Trafigura Group Pte’s Puma Energy adding ships and storage to trade bitumen

The world’s largest oil traders are scraping the bottom of the barrel in search of their next big opportunity.

Vitol Group and Trafigura Group Pte’s Puma Energy are adding ships and storage to trade bitumen, a thick, syrupy petroleum product used to make asphalt for roads and tar for roofs. Transport of the material, traditionally by truck, train or barge from refineries to local builders, has swelled into a global marketplace as demand climbs far from the source of production.

The fight for profits from bitumen, said to come from the “bottom of the barrel” because of its weight, has been driven by fundamental changes in the market. Supply has dropped as ageing refineries in Europe and the US are closed or converted, while road construction in Asia and Africa has pushed up consumption. That’s created demand for massive oceangoing tankers that keep the material heated.

“It used to be mostly a small distribution business,” Chris Bake, a senior executive at Rotterdam-based Vitol, said in an interview. “Now it is more of a whole arbitrage business requiring a global reach and shipping capacity.”

Vitol, the biggest independent oil-trading house, is wellplaced to meet the demand. It’s now the largest bitumen trader after teaming up in March with US-based transporter Sargeant Marine Inc. Their Valt venture has a fleet of 16 bitumen and asphalt ships, some of which can handle single shipments of more than 35,000 metric tonnes, according to its website.

Puma, a Singapore-based unit of Trafigura, recently added four bitumen vessels and is targeting emerging Asian markets including Vietnam, Indonesia and Myanmar. The company’s 11-strong fleet can carry about 165,000 tonnes.

“We see a definite upward trend in the number of nautical miles for bitumen,” said Valt Chief Commercial Officer Nick Fay, who estimates an annual increase of about 7 per cent. “All the new refineries that are getting built don’t make bitumen.”

Global annual demand is about 100 million tonnes, according to Fay, and less than 20 per cent of that is currently shipped by sea in fewer than 200 ships.