02 December 2013 15:44 [Source: ICIS news]
By Malini Hariharan
MUMBAI (ICIS)--It is still unclear when sanctions against Iran will be lifted but petrochemical industry players have started speculating on the impact that this would have on markets.
A landmark nuclear deal was struck between Iran and a six-nation group on 24th November with Iran agreeing to halt uranium enrichment beyond 5% and to be more open to United Nations (UN) inspections.
The deal, which would last six months, provides for around $7bn in “limited, temporary, reversible” sanctions relief for Iran and includes suspension of certain sanctions on “gold and precious metals, Iran’s auto sector, and Iran’s petrochemical exports, potentially providing Iran approximately $1.5 billion in revenue”.
The interim deal could also pave the way for longer term improvement in relations between Iran and the West and full relaxation of sanctions.
Volumes would have been higher but for sanctions that have constrained the country’s petrochemical producers at multiple levels.
Plant operations have been erratic given difficulties in sourcing catalysts and spares. Petrochemicals trade has been restricted to a few countries such as Turkey, China and India as other markets such as Europe have been unable to do business with Iran. And projects have been delayed due to difficulties in securing technology, equipment and financing.
A lifting of sanctions could potentially result in increased petrochemical supplies from Iran which can dampen prices.
US investment bank Jeffries estimated last week that Iran could potentially lift PE exports by 500,000 tonnes/year in the near-term but the increase could take until 2015 to properly emerge.
Others point out that higher operating rates at Iranian plants would result in increased output and exports.
“Catalysts and parts would be more easily available; production will increase and that will put pressure on prices,” said a chemicals trader.
It may take a few more months for Iranian exports to rise but producers are worried that the prospect of higher volumes will start affecting buying behaviour.
“The sentiment will definitely soften; we have seen this in crude oil and this will also impact petrochemical markets,” said an Asian polymers producer.
Meanwhile, petrochemical buyers in China and India, who have benefited from access to competitively priced Iranian product are worried about exports moving to other higher-priced markets such as Europe.
Take the case of methanol. “India imports around 300,000 tonnes/year of methanol from Iran. We are currently seeing a sizeable gap between India and Southeast Asia prices; that gap will narrow once Iranian product starts flowing to other regions,” said a large methanol trader.
But many others believe that after having established business in Asia, Iranian sellers would not be so tempted to move back to Europe.
“Its [imports] clearly are not going to happen tomorrow. If sanctions are lifted, I can’t see product arriving before several months,” said a European polyethylene producer last week.
Iran’s shipping and insurance industries will have to get back on their feet having almost ground to a halt. And it has also been suggested that it will take time for volumes in the liquid petrochemicals industry to get back to pre-sanctions levels.
Others believe that prices can move in either direction.
“We are in a confused state. Urea prices are already low; if sanctions are lifted then Europe can also buy Iranian product which can lift prices. But will Iranian producers work in a way to hold prices at a higher level,” said an urea trader.
Even as market players wait for more information and greater clarity on the recent deal they are also certain that Iran is one more factor that needs to be carefully evaluated while making forecasts for 2014.
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