Iran ramps up petrochemical output to meet Europe demand

VIENNA (ICIS)–Iran has started ramping up production of petrochemicals on renewed buying interest from its key Europe market, a week since a landmark nuclear deal was clinched after protracted negotiations, industry sources said on Thursday.

“We are definitely hearing more enquiries from Europe. Buyers who stayed away previously indicate they are willing to work with us again,” said a source close to an Iranian petrochemical producer. 

Iran had been a major supplier of petrochemicals to Europe, before international sanctions were tightened on suspicions that the Middle Eastern country was developing a nuclear weapon. Europe is the country’s natural market because of its geographical proximity.

On 14 July, Iran and the six world powers – namely, the US, China, Russia, France, the UK and Germany – agreed to end a 12-year diplomatic stand-off. The deal calls for long-term curbs on Iran’s nuclear program in exchange for the lifting of crippling financial sanctions imposed on the country over time.

The long-awaited nuclear deal came in days before the Eid-ul-Fitr holiday that marks the end of the Muslim fasting month of Ramadan on 17 July.

“We’ve not been able to celebrate Eid-ul-Fitr this year because of strong interest from almost everyone we know,” a separate Tehran-based polymer source said.

Iranian petrochemical suppliers are targeting the markets of Germany, Italy and France, industry sources said.

Earlier this week, a high-level business delegation from Germany, led by vice chancellor Sigmar Gabriel, visited Tehran to discuss trade opportunities.

European petrochemical industry sources said they expect polymers to start flowing from Iran into Europe “in a matter of months”, but import volumes will take time to return to levels seen in the past.

Iran can resume polymer exports to Europe once the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system starts approving fund transfers on trade transactions originating in and heading towards the Middle Eastern country.

It would take about six months before Iranian suppliers can actively sell to most parts of Europe, according to buyers in Turkey, which is a major petrochemicals market in the region.

Unlike the other European countries, Turkey has continued to trade with Iran in spite of the international sanctions.

Industry players in the Middle East are worried that Iran’s re-entry in the global crude and petrochemical markets would mean a worsening of an oversupply situation given a general weakness in global demand.

Iran’s major petrochemical exports include ethylene, polyethylene (PE) and methanol.

The nuclear deal between Iran and the six world powers is still subject to scrutiny in the US Congress and the Iranian parliament, but most petrochemical players are optimistic about the outcome.

US President Barack Obama vowed to veto any measure to block the landmark nuclear agreement with Iran.

“Iranians are confident the deal will go through and they are already making preparations to sell more petrochemicals to Europe,” said a source at a Dubai-based trading firm that exports Iranian petrochemicals.

Middle Eastern producers are in the process of ramping up production following the end of Ramadan in mid-July.

Production typically wavers during Ramadan as companies across the region implement shorter working hours.

In Iran, start-ups of new plants may be brought forward following the nuclear deal, industry sources said.

Among plants that are scheduled to come on stream in the country this year are the two PE units of Bakhtar Petrochemical Company, according to Iran’s National Petrochemical Company (NPC).

These refer to Bakhtar Petrochemical’s 300,000 tonne/year linear low density PE (LLDPE)/high density PE (HDPE) swing plant in Mahabad and its low density PE (LDPE) unit in Sanandaj.

By end-2016, Iran’s petrochemical production is expected to more than double to 120m tonnes/year from around 59m tonnes/year currently, according to state-owned NPC.

“Iran is doing all it can to increase petrochemical production,” said an Asia-based polymer trader.

Boosting production capacity, however, must be accompanied with adequate funding, which may not come easy in the current depressed macroeconomic environment, industry sources said.

“The major challenge would be to raise funds quickly. To fast-track projects, you need money,” said a source close to a petrochemical supplier.

At least finding skilled labours to do the work will not present a problem for Iran, industry sources said.

“At the time of the sanctions, many Iranians were jobless. They are well-trained and will be looking for jobs now,” the supplier said.

Focus article by Muhamad Fadhil

Additional reporting by Matt Tudball and Linda Naylor