the introduction of a bitumen price index (bpi) follow-up report
DESCRIPTION
What is a 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 does not promote price regulation does not encourage arrangements related to market shareTRANSCRIPT
The introduction of a Bitumen Price Index (BPI)
Follow-up report
Resolution of RPF May 2001
• That the proposed BPI be monitored and reported to the next RPF
What is a 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• does not promote price regulation• does not encourage arrangements related
to market share
Why a BPI?
•Demise of a “regulated” WLSP in August 2000 •Lack of a creditable datum for adjustment of a product with a price tag linked to global dynamics of crude prices and f.e rates
Advantages of a BPI
• promotes just and fair practice• lends credibility to periodic price
adjustments• facilitates equitable administration of
state contracts
Initial study
• How did WLSP of bitumen vary compared to the landed cost of related hydrocarbon products
• Model to simulate the WSLP movements (exc. incentives) during Jan 89 - Jan 01
• Proposed method
Correlation MFO (Durban) - WLSP
y = 0.8954x + 357.45R2 = 0.9612
600
800
1000
1200
1400
1600
1800
200 400 600 800 1 000 1 200 1 400 1 600
MFO R/ton
Bitu
men
WLS
P R
/ton
Effects of local inflation
Introduced through factoring
FPi = WSLPi-1 [f*MFOi/MFOi-1 + (1-f)*PPIi/PPIi-1)]
Tracks a theoretical WLSP with monthly adjustments
Comparison - Actual WLSP and factored prices
Factored Correlation MFO - BitumenJan 98 Base
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
Pric
e R/
ton
Bitumen WLSP
Factor 0.6
WLSP and Factored prices
y = 0.8423x + 119.86R2 = 0.9641
500.00
1000.00
1500.00
500.00 1000.00 1500.00
Bitumen WLSP R/ton
Fact
ored
Pric
e R
/ton
Conclusions reached• Model simulates actual movements in WLSP very
well• Introduction of local PPI improves the simulation• Suitable mechanism for introducing a BPI• 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
• That the proposed BPI be monitored and reported to the next RPF
Monitoring process
• Price movements of relevant products• PPI• Market quoted prices• Testing the model proposed
Tracking price movements
• Durban Bunkers Price (USD) - daily• USD - ZAR exchange rates - daily• quoted prices of various producers - date of
change• Volumes declared• PPI from SSA
Parameters determined
• Durban bunkers prices (DBP) in ZAR
• Indicator price = WLSPi-1(0.6DBPi/DBPi-1+ 0.4PPIi/PPIi-1)
• Weighted market price
Comparative Price Movements
900
1 100
1 300
1 500
Jan Feb Mar Apr May Jun Jul Aug Sep
Month 2001
HFO
(ZA
R/to
n)
1 300
1 400
1 500
1 600
1 700
1 800
Bitu
men
(ZA
R/to
n)
DBP
Ind Price
Market
Price Correlation
y = 0.2409x + 1032R2 = 0.7458
1350
1370
1390
1410
1430
1450
1350 1450 1550 1650
Indicator Price (R/ton)
Wei
ghte
d M
arke
t Pri
ce
(R/to
n)
Conclusions
• Historical pattern continues• Model has proved to be robust• Month-to-month “indicator price” can be
published 1 month in arrears• Basis of a “recommended retail price”• Primary producers are in favour of the
scheme