FocusTighter credit curbs hit Iran polymer imports

17 July 2008 10:03  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--Increasing credit restrictions on Iran’s major state banks have severely hit polymer imports into the Islamic republic, leading to a pick-up in domestic business, Tehran-based traders and end users said on Thursday.

Inflation in Iran touched 26% in June, according to the Iranian central bank, prompting the government to tighten credit controls in a bid to stem inflationary trends, a trader said.

“Buyers are now forced to deposit payments ranging from 10% to 90% of the total value of the transaction before they can open letters of credit (LCs),” he said.

Polymer importers in Iran had been feeling the heat from US sanctions on the country’s three major state banks since late last year, but the situation has worsened in recent weeks, traders and end users said.

“Earlier, at least some buyers were allowed to open LCs if they could prove their capacity to make euro payments, but now even they are facing restrictions,” a second trader said.

Demand for polyethylene (PE), polypropylene (PP) and PVC from the packaging, agricultural, carpet-making and water supply segments has been quite robust, but buying could slow if prices continue to surge, traders and converters said.

Few buyers have the capacity to make the high payments required of them, due to limited liquidity in the market, said the first trader.

“The big converters have it a bit more easy, but the smaller processors are finding it extremely difficult to procure their raw material requirements, as the LCs are approved on a case-by-case basis,” the trader said.

Some converters have turned to domestic producers for cargoes, since imported material is hard to access.

“Domestic cargoes are now relatively more easy to access, as their prices are now only around $10-20/tonne [or 1%] lower than prices of imported cargoes,” said a PP converter.

Earlier, domestic prices of polymers were around 10-15% lower than import prices due to government-enforced subsidies.

“It is now quite lucrative for local producers to sell to domestic buyers,” said the first trader. However, unscheduled shutdowns, such as at Marun Petrochemical, and delays in the start-up of new projects have limited availability in the local market.

Even Dubai-based banks, under pressure from their European head offices, are reluctant to open LCs and demand advance payment or LC at sight terms, traders said.

Chinese exporters of polyvinyl chloride (PVC) also demand advance payment for their cargoes.

Only South Korean exporters continue to offer Iranian polymer buyers favourable credit terms, as Iran is an important trading partner for South Korea.

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By: Prema Viswanathan
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