Trafigura faces setbacks in restarting refinery

10 July 2018, Week 27, Issue 721

Trafigura is struggling to bring its 30,000-bpd oil refinery, the fifth largest in Argentina, back on line as workers protest plans to reduce the workforce.

The commodities giant, a new player in the country’s downstream, took the refinery in Bahia Blanca, Buenos Aires Province offline in mid-June after a sharp depreciation of the peso and rising crude prices made it economically unviable to sustain operations.

This led the company to implement cost-cutting measures, according to a statement. These included plans to reduce the size of the refinery’s workforce, triggering the protests.

The Argentine Federation of Oil, Gas and Biofuel Trade Unions’ Bahia Blanca division started occupying the refinery on July 6 to protest at the panned layoff of what it believes to be 200 workers. The industrial action underlines the downstream sector’s problems in general and non-integrated companies challenges in particular.

The peso’s plunge – down about 50% this year – coupled with stronger international oil prices drove the oil industry to agree to freeze prices in May and June. While the deal was designed to help the government keep a lid on an inflation rate in excess of 25%, the freeze was scrapped in July in an effort to return to market pricing.

Non-integrated players are struggling more than integrated companies such as state-run YPF and BP-backed Pan American Energy, which supply crude to their own refineries.

Trafigura buys its feedstock from YPF. The trader is looking to cut costs, with the goal of bring the refinery back on line “in the next few weeks”, the company said. But, depending on negotiations, the worker protest may slow the restart and union sources have said it could spread to other refineries.

Labour unrest is not the only challenge facing the downstream, with refiners seeking to recover losses incurred during the pricing freeze even though consumer demand has slumped.

According to the Federation of Fuel Retailers, diesel and gasoline prices are 40% lower than they should be when taking into account the price of crude and the currency slump. Refiners raised prices by 5% in July and are anticipated to increase them another 10% in August.

But the challenge will be to not depress demand, which started to decline in May for the first time since March 2017, according to the Confederation of Hydrocarbon Retailers (Cecha). Cecha head Carlos Gold said: “We are going to watch to see if the negative trend continues, which would be [cause] for concern.”

YPF has a 55% share of the retail fuel market, followed by Raizen with 22%, Axion with 13% and Trafigura with 7%.

Edited by

Ryan Stevenson

Managing Editor

Any questions? Please get in touch