FocusIran PE, PP may continue price spikes; S Korea as lone supplier

16 March 2012 05:53  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot prices of Iran’s polymer imports are on a firm uptrend, with only South Korea left as its main supplier of polyethyelene (PE) and polypropylene (PP) resins amid a further tightening of international sanctions on the Middle Eastern country this year, industry sources said on Friday.

China has also started exporting polymers into Iran but the volumes are negligible, they said.

Prices of high density polyethylene (HDPE) black pipe grade in Iran have been on an upswing since the start of the year, rising at an average of $50/tonne (€38/tonne) every two to three weeks.

“I have to confess that I can only import from South Korea now. Demand here is normal, and with South Korea as a sole external supplier now, prices [of resins] are escalating,” an Iranian polymer importer said.

“Going through a Dubai-based trader for South Korean material seems difficult as well. We have to engage directly with a South Korean supplier,” another Iranian importer said.

Offers for various HDPE pipe grades of South Korean origins are currently at $1,650-1,800/tonne CFR Iran, up $50-100/tonne from two weeks ago, when a cargo was sold at $1,600/tonne CFR Iran for HDPE 100 natural grade, market sources said.

For PP block copolymer grade from South Korea, offers this week were at $1,750-1,800/tonne CFR Iran, LC (letters of credit) at sight, $50-100/tonne higher than last week’s transaction levels, they said.

Iran has no local production of PP random copolymer and HDPE pipe black grades and relies on imports for supply. On a monthly basis, the country’s total polyolefins imports range between 30,000 to 50,000 tonnes, industry sources said.

In April 2011 to January 2012, about 31,000 tonnes of PP were exported from United Arab Emirates (UAE) to Iran, inclusive of cargoes that originally came from South Korea. Saudi Arabia and South Korea exported about 10,000 tonnes of PP to Iran over the same period, according to the Iranian custom data.

From the start of 2012, South Korea has emerged as Iran’s biggest supplier of polyolefins, with monthly average volumes of close to 10,000 tonnes, up 20-30% from 2011, market sources said.

For HDPE pipe grades alone, about 10,000 tonnes of South Korean material have been imported by Iran less than three months into the year, a South Korean HDPE pipe maker said.

Demand in the Iranian market for resins remains robust ahead of the Iranian new year celebration amid the import shortage, Iranian importers said. Iran will be on holiday on 19-23 March.

But a lack of US dollars and hikes in bank interest rates quoted by the Iranian central bank hampered buying interest, an Iranian polymer importer said.

“We could only buy small lots of a couple of hundred tonnes at a time because of tight cash flow. In the event that we do not have enough US dollars, we will transact in Korean won for the [South Korean] material,” the importer said.

The Iranian central bank has been raising interest rates to discourage further purchases of US dollar that is weakening the rial.

Before the recent tightening of the sanctions on Iran because of a suspected development of a nuclear weapon, the country counts the Gulf Cooperation Council (GCC) region, Taiwan, Thailand and Europe among its major polyolefins suppliers, industry sources said.

But in January this year, the EU decided to impose sanctions on its central bank and other financial institutions on any dealings with Iran.

The sanctions led to difficulty in processing financing and insuring cargoes going in and out of Iran, prompting a number of its major trading partners to halt trades with the country.

In South Korea, on the other hand, companies are still managing to get insurance for vessels heading to Iran and the northeast Asian country’s banks directly deal with Iranian financial institutions for the transactions, market sources said.

“Although getting payments and our vessels insured maybe troublesome and getting more difficult, we are still able to sell to Iran as of now,” a South Korean HDPE pipe maker said.

GCC-based PE, PP producers that used to be active exporters to Iran said they have stopped offering March shipments to Iran as payments became near impossible to handle - either the Iranian importers do not have sufficient US dollars to pay on cash basis, or the GCC suppliers are unable to engage with their domestic banks to open LCs for their Iranian customers, they said.

Taiwan and Thailand have stopped trading with Iran since January because of payment term issues as domestic banks were unable to open LCs (letter of credits) for any transactions with Iran, industry players said.

Most government-related insurance companies of these countries are also unwilling to insure any vessels heading to Iran, they added.

Some Asian traders said European vessels are likely to be banned to disembark at Iranian ports, with effect from 1 May, which are causing spikes in shipping costs. Freight rates from South Korea to Iran have increased nearly 40% in March from the previous month to about $100/tonne for polyolefins resins, industry sources said.

“The higher [PP] prices in Iran are also an outcome of the rising ocean freight,” a South Korean PP maker said.

Depending on how long this tight supply situation in Iran will last, the country may emerge to be the best-priced polyolefins market in the Asia and Middle East regions, industry sources said.

($1 = €0.76)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Ong Sheau Ling
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