EPCA ’10: Difficulties of trading Iranian methanol in Europe peak

03 October 2010 17:18  [Source: ICIS news]

BUDAPEST (ICIS)--The problems associated with trading Iranian methanol in Europe may be approaching their peak, according to sources speaking on the sidelines of the 44th annual European Petrochemical Association (EPCA) meeting on Sunday.

The difficulty of selling Iranian methanol escalated recently following renewed and stricter trade sanctions implemented by the EU and the US against Iran in an attempt to curtail its nuclear programme.

Although the EU sanctions do not specifically target methanol itself nor the companies responsible for the production and marketing of Iranian petrochemicals – the Iranian National Petrochemical Co (NPC) and the Iranian Petrochemical Commercial Co (IPCC), respectively – many banks have taken a cautious approach and stopped issuing letters of credit for the purchase of the material.

In addition, as American companies will not deal with Iranian methanol, the product is now usually offered at a discount to non-Iranian material.

The spread between the two tiers is generally around €2-3/tonne ($3-4/tonne) but fluctuates, and a difference of €7-8/tonne was seen on 1 September.

“It’s purely a banking problem, nothing else. It’s not illegal to buy [Iranian methanol],” said a trader.

Many sources had previously predicted the situation would worsen, with increasingly more companies and banks refusing to associate themselves with Iranian-origin product, and that the discount would increase to around €10/tonne or higher.

While that scenario is still a possibility, some sources said at the EPCA meeting that they believe the situation would not get much worse.

The trader said that many European banks have reversed their positions and begun to issue credit lines again.

“We may have reached the low point of this issue. Some banks have decided they should support their customers [and finance the deals]. And, as long as it’s tight, there will be buyers. At the end of the day, it’s a good deal, it’s cheap,” said the trader.

A buyer said: “I was worried about this a year and a half ago, but we’re still talking about [whether it will get worse], so I don’t really think it will.”

A producer added that the issue was driven by politics, not market fundamentals; as a result, it was unlikely to be a permanent feature of the supply picture.

This year’s EPCA meeting runs from 2-6 October.

($1 = €0.73)

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By: Ross Yeo
+44 208 652 3214

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