10 October 2012 11:11 [Source: ICIS news]
DUBAI (ICIS)--Iranian refiners' base oil production costs almost tripled this year compared with that in 2007 because of firmer feedstock vacuum gasoil (VGO) prices on the back of a supply shortage, a major supplier said on Wednesday.
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Safari was speaking at the ICIS Middle Eastern Base Oils and Lubricants conference in Dubai, which ends on 10 October.
Average feedstock prices have risen from just under rials (IR) 1m/tonne in July 2007 to peak at around IR10m/tonne in April this year, Safari said.
"Producing SN500 base oils in April 2007-April 2008 was at IR7m/tonne, but has risen to over IR20m/tonne in April 2011-April 2012," Safari added.
However, base oil profit margins are expected to increase despite the higher production costs because of potential earnings from exports on the back of a higher exchange rate of the rial against the US dollar, Safari said.
Feedstock was unsubsidised in 2007 and the free market was almost equal to the official rial-US dollar exchange rate, leaving base oil profit margins to be squeezed, Safari said.
The depreciation of the rial in early 2010 led market players to cease the reference to the official exchange rate, which the National Iranian Oil Company (NIOC) was pricing its feedstock on, Safari said.
"As a result, exports became more profitable because of stronger margins in US dollar.
"This will continue until NIOC decides to base their feedstock supply on the official exchange rate," Safari added.
In addition, tax exemptions for exports have made it more attractive for base oil producers in Iran, who will enjoy an even better margin from the current market, Safari said.
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