Iran nuclear deal to alter Mideast polymer trade flows

ABU DHABI (ICIS)–Iran may look to sell huge volumes of polymers to Europe once the sanctions are lifted following a landmark nuclear deal it reached with major world powers on 14 July, industry sources said on Wednesday.

This may trigger a major shift in trade flows of plastics raw material from the Middle East to Asia, while China may see fewer cargoes coming from Iran, they said.

“We will see a shift in trade flows in the next six months. With Iran in the picture, the Middle East polymer scene will change,” according to a Dubai-based petrochemical trader.

On 14 July, Iran and the six world powers struck a landmark comprehensive agreement to curb the Tehran’s nuclear activities in exchange for the lifting of the crippling economic and financial sanctions imposed on the country.

The lifting of the sanctions may not happen until after six months but Middle East players are bracing for Iran’s re-entry into the market, given its previous status as a major exporter of crude and petrochemicals.

Iran is part of the 12-member oil cartel OPEC.

The Middle Eastern country can resume polymer exports to Europe once the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system starts approving transactions originating from and heading towards Iran, industry sources said.

The resumption of SWIFT, an international network allowing the transfer of funds, will facilitate trade between Europe and Iran.

The process to allow the resumption of SWIFT may take months, industry sources said.

China, which became Iran’s major market when the sanctions were imposed, will likely see a dwindling of supply from the Middle Eastern country.

Without the sanctions, Iran may prefer to sell to Europe given its proximity.

“China will likely see fewer cargoes from Iran emerging,” a source close to an Iranian producer said.

Iran is expected to export at least 30% less polymers to China, industry sources said.

However, at least two Dubai-based traders said Iran will continue to sell significant volumes to China, Asia’s biggest polymer market.

“Despite China’s recent self-sufficiency, you cannot ignore such a big market,” one of the traders said.

Over the years, China has been building up its petrochemical capacity to reduce its reliance on imports.

With the emergence of domestic coal-to-olefins (CTO) and methanol-to-olefins (MTO) production, China is expected to import less polymer volumes in the coming years, industry sources said.

As of end-June, MTO and CTO account for 18.4% or 5.96m tonnes/year of domestic polymer production in China, according to ICIS data.

Once the ban on using SWIFT is lifted, major suppliers in Saudi Arabia, Qatar and the UAE will compete directly with Iran in Europe, forcing them to offer polyethylene (PE) at lower levels.

“Saudi, Qatar and UAE may be forced to sell more to Asia because of increased competition in Europe,” said a Saudi based polymer source.

Due to the changing dynamics, Saudi Arabia, a major polymer producer, may end up selling more to China, according to a source close to a Middle East producer.

“Saudi will work quickly to improve its distribution links in China as Iran targets to sell more volumes in Europe,” the source said.

Focus article by Muhamad Fadhil

Additional reporting by Angie Li

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