Iran sanctions to hamper Europe methanol supply - industry sources

03 September 2010 18:14  [Source: ICIS news]

LONDON (ICIS)--EU and US trade sanctions against Iran could pose serious supply problems for the European methanol market, potentially resulting in high prices, industry sources warned on Friday.

After the US and the EU imposed stricter sanctions on Iran to curtail its nuclear programme, methanol from the country – which is usually offered at a discount of around €2-3/tonne ($3-4/tonne) compared with material of specifically non-Iranian origin – has become increasingly difficult to sell in Europe.

The EU sanctions do not specifically apply to methanol, making the purchase of Iranian material completely legal for European companies.

Nevertheless, fewer and fewer banks are willing to offer credit lines for the purchase of Iranian products, making it difficult for companies to proceed with payments.

“It’s not really the consumers who don’t want to buy it, it’s the banks that are cautious. They’re starting to take the American view more. The US and the EU are trying to influence Japanese and Chinese banks, too, so that they’ll start to take the same position,” said a Europe-based trader.

For the time being, however, the effect on the European market has been marginal at best, with most sources agreeing the situation has only partially contributed to rising European spot prices, if at all.

Yet many sources said that it would soon become all but impossible to buy Iranian methanol in Europe, probably by some point during the fourth quarter of this year.

If that were to occur, the market would be faced with a significant shortfall in supply, with Iranian nameplate capacity totalling more than 5m tonnes/year.

Furthermore, this would come at a time when at least two plants are shut down for maintenance, namely the 1.15m tonne/year Atlantic Methanol Production Co (AMPCO) plant on Bioko Island, Equatorial Guinea, and Methanol Holdings Trinidad Ltd’s (MHTL) M5000 plant at Point Lisas, Trinidad.

To complicate matters, there are reports that China is considering to impose antidumping duties on Iranian methanol, which is currently ubiquitous on the Chinese spot market. This could push up Chinese and global prices.

“This Iranian situation could become a big problem in [the fourth quarter],” said a trader, whose warnings were echoed by several others.

Some players were more optimistic, however, and said the situation would be rectified before prices rose to prohibitively high levels.

“They will somehow continue to sell into Europe; there will always be someone willing to buy. The discounts will increase; right now they are just €2/tonne. They could go as much as €10/tonne. This is nothing for them,” said a European producer.

“Sometimes you see Indian material, which is just ridiculous – there is no methanol production in India. They will always find some way to sell [Iranian material],” the producer added.

Others said the sanctions could be eased if global industries begin to suffer, noting that more than just the methanol market is affected.  

“If the price of crude starts to go up, the US don’t want this. I think the sanctions could be lifted before the industry is really harmed,” said another trader.

($1 = €0.78)

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By: Ross Yeo
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