FocusIran credit issues hit Asia methanol buyers

18 August 2008 05:08  [Source: ICIS news]

By Heng Hui

SINGAPORE (ICIS news)--Asian methanol players are finding it difficult to finance their purchases from Iran, as the standoff over the country’s nuclear programme is making it hard for them to get letters of credit (LC) from major Asian and international banks, traders said on Monday.

Since the ban on US dollar-denominated LCs a few years ago, Iranian companies had been trading in euros, or currencies preferred by customers including the Japanese yen or United Arab Emirates (UAE) dirham.

Though most payments were made in euros, securing euro-denominated LCs for Iranian receiving banks was getting increasingly difficult, some market players said.

“Securing euro-denominated LCs requires the LC to be routed through a European bank but big European banks such as Deutsche Bank Group will not work with Iran. I only know of Swiss banks who are willing to do this,” said a Malaysian trader.

Currently major banks in Singapore, Hong Kong and China have declined to stand guarantee due to the uncertainties in Iran’s political and economic climate, said a major market player.

Players also said that now the LCs needed to be confirmed by UAE state banks, instead of payment directly through to Iranian banks.

Banks were also asking customers to indemnify the bank in the event of the funds being frozen by UN decree, a trader said. This meant that a trader would be required pay double the price in case the funds were locked in transit due to such a regulation.

“I am worried that I may have to pay twice –once to the bank for the frozen payment, and another time to try to open a second LC,” the Malaysian industry player said.

Some Chinese market players said that only some of the smaller Chinese banks could issue LCs to Iranian receiving banks. Some traders were using credit agencies with a strong financial backing to help them. It was heard that Chinese trading companies with good credit histories were selling credits to others.

“The issue of securing credit has become one of the most demotivating factors to work with Iranian companies,” a Taiwanese market player said. “If I really required Iranian cargo, I would go through another trader rather than handling the transactions myself.”

“In any case, I don’t have a preference for Iranian cargo, but just on-spec quality methanol delivered at the time I require. I would go with whatever is easiest for me,” he added.

“I noticed more Iranians setting up branch office outside the country,” an Indian trader said. “It may become they have to establish relations with foreign banks.”

Iran Petrochemical Commercial Co (IPCC) said that the company accepted telegraphic transfer (TT) apart from LC if the customer was unable to find banks willing to extend credit facilities.

A South Korean end-user who was using this method of payment, said that TT was preferable for big companies as it eliminated financing costs. 

IPCC added that its sales were normal and it was conducting business with traders worldwide, apart from North American and Israeli companies.

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By: Heng Hui
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