FocusAsia buyers resort to novel means to pay for Iran petchems

31 January 2012 03:30  [Source: ICIS news]

By Heng Hui

South Pars gas field in Asaluyeh, IranSINGAPORE (ICIS)--Some Asian traders are using creative methods to obtain Iranian petrochemical products as US and EU-led international sanctions imposed on Tehran tighten, industry sources said on Tuesday.

The US and Europe have increased the pressure on Iran's government following a November 2011 report from the UN which said there was strong evidence that Iran is trying to build a nuclear weapon.

Latest sanctions from the EU include an immediate ban on oil imports and a gradual phase-out of existing contracts by July 1. It has also outlawed petrochemical imports from Iran, as well as the export of equipment and technology for the sector.

Asia is divided on its stand on Iran sanctions, partly because of the country’s strategic importance as a source of crude oil and petrochemicals to the region.

However, dealing with Iran has become very difficult of late for Asian buyers of its petrochemical products, given a blanket ban on major western financial institutions from financing any transaction going in and out of the country.

Iran ranks next to Saudi Arabia as the biggest petrochemical producer in the Middle East, according to industry experts.

Iranian products are offered at competitive prices, but it is a case of Asian market players simply needing the Iranian goods and they will resort to any means possible to procure them.

Some buyers have turned to using non-traditional currencies in trades, including the Japanese yen and the United Arab Emirates' (UAE) dirham, for letters of credits (LC) to pay for Iranian cargoes.

Most of the payments for Iranian benzene and styrene, base oils, polyethylene (PE) and chemicals such as methanol were believed to be paid to traders based in Dubai, UAE.

With trade financing increasingly becoming a problem, payments via telegraphic transfers (TT) were introduced but these only work for market players with deep pockets, industry sources said.

“I have been paying through Dirham-denominated TT,” said an Indian trader.

Telegraphic transfers are done by buyers within 30 days upon delivery of the Iranian cargoes, with freights collected by ship owners by the same means from Turkish banks, sources said.

Sellers said they have and can receive payment through Pakistan, and surrounding Middle Eastern countries.

“They prefer it this way as well, so they save on the interest charges of not obtaining credit,” said a source from an Iranian petrochemical producer.

“We accept any method of payment that works,” said another producer.

Others are consenting to changing the origin of Iranian cargoes, market sources said.

For liquid petrochemicals such as methanol, Iran’s produce may be being mixed with Indian material, to allow the cargo to be identified as of Indian origin on its certificate, some market players said.

An idea of a bartering system, which will remove the need for financing a transaction, is being floated whereby Iran will get payment in goods in exchange for the petrochemical products it will ship out, market sources said.

However, there are concerns that these windows of opportunities for trades may soon get smaller, as sanctions imposed by the US and Europe continue to tighten.

Trading of Iranian petrochemical products such as polymers had ceased in Japan and South Korea, but some chemicals that are considered a necessity still had to be imported from Iran.

Iran has the second-largest petrochemical output in the Middle East, next to Saudi Arabia. Between March and October 2011, Iran sold around 14.3m tonnes of petrochemical products, according to data released by state-owned media organisation Tehran Times.

China, which is Iran’s biggest export market for methanol and PE, has been cutting volumes of imports, following restrictions imposed on South Korean banks in handling tri-party transactions.

South Korean financial institutions had traditionally acted as the middle man for transactions between China and Iran. Still, China-Iran transactions continued to flourish, industry sources said.

An Iranian methanol producer had committed 6070% of its production this year to China, said a company source.

“We are in the final stages of negotiation with Iran,” said a Japanese trading house.

“We are still able to open through Japanese banks, although we are not sure how long this will last,” the source said.

A few South Korean traders were also heard to be in the final stages of negotiation with Iranian producers.

Asian buyers said they could not sign contracts with Iran because of the difficulty in obtaining credit to pay producers after western powers toughened sanctions against the country.

The EU’s broadened sanctions on crude oil and petroleum products prohibit the import, purchase and transport of such products as well as related finance and insurance.

This could mean that huge uncontracted volumes of Iran-produced methanol would find their way into the spot market, traders said.

Some ethylene traders in Asia said import business with Iran continues, but securing insurance for these cargoes is difficult.

However, the sanctions could ultimately weigh on Iran’s petrochemical production should operational problems occur, and new projects could be curtailed by a lack of funding.

Please visit the complete ICIS plants and projects database
For more information on methanol, visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Heng Hui
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