Iran sanctions hit methanol markets globally

30 April 2012 00:00  [Source: ICB]

Western-led sanctions imposed on Iran over its nuclear program have already contributed to a tightening of the European methanol market and an increase in prices. Now the sanctions have started to impede the movement of Iranian methanol to the Asian markets, with potential global consequences.

Iranian missile

 US and EU concerns or Iran's nuclear programme have tod to tighter sanctions

On 23 January, the EU broadened existing sanctions against Iran to include the import of oil and petrochemicals, as well as the export of related equipment and technology. Prior to this, non-US companies operating in Europe were free to deal with Iranian methanol, if they could find a bank to process the deal.

At this stage, around 500,000 tonnes of methanol were being brought to Europe from Iran annually, out of a total effective production capacity in the country of approximately 4m tonnes/year. While the sanctions stipulate that any petrochemical supply contracts concluded before 23 January may be executed until 1 May, Iranian methanol has already effectively disappeared from the European market.

Out of a total market size of around 7m tonnes/year, 500,000 tonnes/year is a not insignificant loss. Since 23 January, average of European spot prices have increased by 11%. And although other factors have undoubtedly been in play, such as an unexpected improvement in demand since the fourth quarter of 2011, sanctions have had an effect, both physically and on market sentiment.

"Iranian methanol [brought to Europe] was mainly uncommitted, so it was an important part of the liquidity of the European spot market. Now there is hardly any free spot availability. If you want spot you need to pay a high price," said a major European buyer.

Many players believed the impact of the missing 500,000 tonnes/year would be temporary. Indeed, many players still hold this view. However difficulties are being encountered when trying to move material from Iran to China, India, and southeast Asia. Initially, these problems consisted of buyers showing a preference for non-Iranian product, despite not being subject to the EU/US sanctions.

This resistance stems from associations with European and American companies, which are themselves unable to touch the material, and also payment problems, with international banks unwilling to finance deals or process payments.

More recently, the difficulties have extended to the shipping market. Both vessel owners and insurance providers are increasingly unwilling to get involved with Iranian product as the influence of the sanctions widens.

By: Ross Yeo
+44 208 652 3214

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