Lifting of sanctions to boost Iranian urea exports

LONDON (ICIS)–The removal of a large number of sanctions against Iran is expected to give a boost to urea fertilizer exports out of the country, market sources said.

Over the last few years, Iranian urea manufacturers have been primarily selling to India at a discount to the Arab Gulf. This is because of sanctions in the US and Europe.

Foreign fertilizer trading companies that have so far abstained from doing business with Iranian urea producers due to sanctions, are now expected to start exploring business opportunities in this market.

“Lifting of Iran sanctions should mean more sourcing options for traders, and that a broader base of traders will trade Iranian and more markets will be open to Iranian product,” a Switzerland based fertilizer trader said.

While it may be some time before we see foreign players trading in Iranian urea, pricing could see an impact in the shorter term as the difference in the price of urea from Iran and the Arab Gulf is now expected to reduce.

“Well, technically it should allow Iran to sell higher and make others sell a bit cheaper,” said a global urea trader.

He was referring to the discount between Iranian urea prices and the Arab Gulf over the last few years. Over the last five years, Iranian urea has on an average been $15/tonne cheaper than the Arab Gulf. This is because of few supply outlets for Iranian urea.

“There will be more supply options [for Iran]. This will balance things, they [Iran] will no longer need to sell at discount to India but will compete with Arab Gulf producers,” a European trader said.

However, market fundamentals will still be key. With urea prices expected to stay under pressure given an oversupplied market, it is not likely that prices in Iran will see a big jump. However, the discount that was offered on Iranian product when compared to other origins is expected to decline.

“Maybe they won’t have to sell at a discount – but they will still have to compete with other origins, so prices will have to be market level,” the Switzerland-based fertilizer trader said.

But an Asia-based trader said Iran would still likely have to sell at a small discount in certain markets, like the US, Thailand and Australia. This was due to past experiences of cargo contamination and also because they would need to offer at lower levels to get into these markets which only likely look at Iranian tonnes if there was a sudden shortage from regular supply sources.

The EU has lifted all its nuclear-related economic sanctions on Iran, ending restrictions on trade, shipping and insurance. This means European companies will be able to resume business with Iran.

Is not clear if North American companies will be able to resume business with Iran given that US sanctions against terrorism, missiles and human rights on Iran are still in place. The US will, however, not penalise foreign companies that do business in Iran.

Even this concession from the US is bound to help, as Asian or European traders who have offices in the US, can still do business out of Iran.

However, global banks are seeking further clarity before they finance deals from Iran, and that could take several months. This caution comes as over the last 10 years, banks have paid $14bn in fines or out-of-court settlements for bypassing US sanctions on Iran, Sudan and Cuba, according to media reports.

“It’s not clear how it will really work for dollar transactions. We are waiting for guidelines from (US) treasury and compliance to how it will work and also a time frame,” the Swiss trader said.

While it may take time before there is clarity whether major banks who have exposure in the US will be able to lend to companies doing business in Iran, market participants are hopeful that it is bound to happen.

“It will take some time for banks to mobilise, but they will come,” said a trader who does business out of the Persian Gulf country.

A similar situation was expected for other fertilizer products. Talking about how the lifting of sanctions might impact on the sulphur market, a European sulphur trader said: “We’ve been talking about this for a long time. It’s only a question of time when the banks will do business again with Iran and when we get the green light.”

Despite the sanctions, Iran has been a major exporter of sulphur to China, with China having imported just over 1m tonnes of sulphur in January-November 2015, accounting for 11% of China’s total imports during the 11-month period.

Additional reporting by Rebecca Clarke and Julia Meehan

Focus article by Deepika Thapliyal