China retains status as Iran’s top PE market post-sanctions

SHANGHAI (ICIS)–China has remained the top destination for polyethylene (PE) cargoes from Iran more than three months after international sanctions were lifted on the Middle Eastern country, industry sources said on Wednesday.

Banking restrictions remained in place, hampering Iran’s plans of shipping out more material into Europe – its erstwhile major export market.

“International banks are not being cooperative,” an Iranian-based supplier said.

Until January this year, economic and financial sanctions were tightened on Iran by the West led by the US and Europe on suspicion that it was developing a nuclear weapon. The sanctions had virtually cut off Iran from the international global market, in terms of exports and access to capital.

The lifting of the sanctions this year raised expectations among Iranian petrochemical makers of recovering their sizeable market share in Europe, but three months hence, there has been no significant shift in PE trading volumes out of Iran.

“China is still our number one market. We cannot sell to Europe,” an Iranian PE supplier said.

At least three Iranian PE suppliers said China continues to account for more than 50% of their overall sales, post-sanctions on a monthly basis.

India, Russia and Uzbekistan are other key export markets for Iranian PE suppliers.

Post-sanctions, Iranian suppliers expect to build on their existing footprint in neighbouring Turkey and make inroads into European markets, such as Germany, Greece and Spain.

“Everyone was excited by the news of the lifting of sanctions but progress since has been slow moving,” a source close to an Iranian producer said.

Accessing international banking networks to process payments has remained a challenge for Iranian suppliers, industry sources said.

Banks with assets in the US are still unwilling to support Iranian operations, as Washington has maintained a separate set of sanctions on Iran over the Tehran’s missile program, and on entities linked to the Iranian Revolutionary Guards.

Iranian suppliers noted that their Asian customers are demanding discounts of up to $40/tonne since payments will be executed on a telegraphic transfer (TT) basis.

Customers cited hefty transfer charges and a general inconvenience in the transactions for demanding discounts when dealing with Iranian suppliers.

Payments from Asian-based customers are still going through Dubai, where exchange rates are more favourable, a chemical producer in Iran said.

Iran currently uses two exchange rates for the rial – the free market rate and a state-endorsed rate – to cope with limited foreign currencies in the country.

“Banks in Iran give us free market rates and we lose up to 15% per transaction because of this. We prefer to do our banking in Dubai,” the chemical producer said.

With no direct banking services available, European customers prefer to take a more cautious approach, Tehran-based sources said.

“Everyone is just waiting. The future is unclear,” the Iranian-based supplier said.

Early in April, Iran had asked the EU to put pressure on the US to ease the Middle Eastern country’s re-entry into the global financial system but the process is taking place at a sluggish pace, industry sources said.

It may take at least six more months to address the issue on access to international banking networks, two Iran-based industry sources said.

“Six months is what we expect,” a Tehran-based polymer source said.

Focus article by Muhamad Fadhil

Picture (top): Plastic bags are among the end-uses of polyethylene (PE)
(Source: F1 Online/REX/Shutterstock)