The introduction of a Bitumen Price Index BPI

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The introduction of a Bitumen Price Index (BPI)

• First submitted to RPF in May 2001

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Bitumen Price Movements
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BPI

• a transparent and defendable mechanism
  of price adjustment irrespective of the
  agreements negotiated between particular
  suppliers and their customers
• driven largely by global factors

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Initial study

• how did WLSP of bitumen vary compared to the
  landed cost of related hydrocarbon products
• a model to simulate the WSLP movements (exc.
  incentives) during Jan 89 - Jan 01
• propose a method

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Typical Data
Note ZAR/USD exchange rates, 8020 Postings and
Singapore prices for MFO for Monthi are all based
on the prices ruling during the 16th of Monthi-2
to the 15th of Month i-1.
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Comments on Correlation

• A strong relationship between variables evident
  (R2 0.9662)
• Scatter attributed to
• stepwise adjustments to WLSP
• effect of other factors e.g. inflation

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Proposed simulation model

• Introduced through a ratio
• WSLPi fMFOi/MFOi-1 (1-f)CPIi/CPIi-1
• WSLPi-1i
• Where f 0.6
• Provides a periodic price adjustment factor

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Conclusions

• Model simulates actual movements in WLSP very
  well
• Suitable mechanism for introducing a BPI
• Introduction of local PPI improves the simulation
  marginally
• In the absence of a WLSP there is evidently no
  other alternative
• The notion that presentation of invoices of
  supplier as a means of substantiation of
  increases is probably naïve

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Conclusions/cont...

• A method such as examined also indicate the need
  for price reductions with accompanying benefits
  of
• enhanced credibility
• improved competitiveness

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RPF May 2001 Resolution 1
That the proposed Bitumen price index (BPI) as
presented by Mr Piet Myburgh be monitored and
reported on at the next RPF. (Reported in
November indicated that more data in recent
category necessary to make reasonable conclusions)
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Testing the proposed model
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Method

• At the end of each month publish a BPI based on
• Market price (ZAR) 180 cSt MFO at Durban for the
  past month
• PPI for the prior month
• BPI applied to pen grade bitumen, cut-backs and
  proportionally to emulsions and modified binders

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Source material 1 Bunker Prices
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Source material 2 FE Rates
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Source material 3 PPI
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Contract administration

• Sabita working group
• Two primary producers
• Two contractors
• Secondary supplier
• Consulting engineer
• Examined the issues
• No problems foreseen
• Recommendations

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Recommendations

• BPI (based on past months bunker prices in ZAR
  and previous month PPI) applied to all bituminous
  products (excl tars)
• Bitumen be regarded as special product subject
  to rise and fall
• That monthly adjustments be made in terms of
• Published BPI
• Rates entered by contractor on tender form

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Tender info for price variations

• Applicable materials (e.g. pen grade bitumen,
  emulsion, cut-back, modified binder
• Binder type and concentration (emulsions and
  modified binders)
• Price for the base month (ex VAT)
• Application rates for tender purposes
• Variations ordered

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Recommendation

• That RPF accept the concept BPI and recommends
  its introduction on contracts
• That a task team be appointed to draft insertion
  into contract documents to that effect
• That the matter be taken up with SAFCEC to
  facilitate its introduction