Finance, logistics and quality concerns hinder Iran-EU trade

LONDON (ICIS)–Almost six months on from the widely-heralded lifting of European sanctions on Iran, a snapshot of views canvassed from sources in a variety of petrochemical markets suggests that any direct impact from incoming Iranian origin volumes has been limited, at least so far.

While oil imports from Iran are moving rapidly towards pre-sanctions volumes, according to a Reuters report, few petrochemical players appear to have been proactively seeking out Iranian volumes and/or building new business relationships.

However, those that have sought volumes from Iran have found financial, logistical and uncertainties over quality as barriers to trade due to ongoing US sanctions, which had already shuttered out any European companies which might have any foothold in US markets.

“We can’t do any business with Iran, those of us with any US footprint cannot do so,” an olefins source said.

“We expect there will be some Iranian product in the future, but not yet because there are still issues with finance, insurance and vessels,” a glycol trader said.

“Iran stays difficult, although we all would like to go fast,” an olefins trader added.

The primary barrier is finance. With US primary sanctions – which include a ban on the use of the dollar in businesses with Iran – still in place, major European banks still lack confidence.

“Basically if you are transacting in US dollars, the bank you are transacting through sends it via a US correspondence bank, so banks are paranoid and can choose not to handle the deal,” a trader said.

“Politically, it’s great, but it will take a while for the business community to change their protocol,” it added.

Logistics and/or supply chain issues are also proving to be a headache.

Protection and Indemnity (P&I) maritime insurance clubs have tried to offset the restrictions on the provision of insurance by US domiciled insurers by offering ‘fall-back’ cover as an “interim solution to facilitate the resurgence of lawful trading with Iran.”

“So far we have struggled to get any [ship] owners to engage in conversations on petchems ex [from] Iran citing P&I cover, etc,” a shipbroker said.

“They [Iranian players] have one major issue: their supply chain is lousy,” a glycol player said.

It added that ethylene glycol (MEG) had to be first trucked or railed to the port, and then transhipped at the port into the vessel, so that added to the potential for quality issues.

“They have to really control this or they will have a major headache,” it added.

A source from the polyethylene terephthalate (PET) market said, “There are a few things to highlight when discussing Iranian PET: reliability is low, there is availability but no guarantee of quality. It is also not advantageous because Iranian material carries a 6.5% duty.”

While there appears to have been limited imports into the EU mainland, some volumes continue to show up in Turkey.

For example, polyethylene (PE) and polypropylene (PP) imports from Iran have been steadily increasing and local sources fear this is the calm before the storm.

“Right now there is not so much competition as Iranian banks are still waiting for SWIFT [Society for Worldwide Interbank Financial Telecommunication] and working through Dubai and Abu Dhabi – but in the next coming few years this will be the biggest threat for the Turkish finished goods producers,” said one market player.

The managing director of Iran’s Arya Sasol Polymer Company, Hamid Vafaei, recognised on 18 May Iranian manufacturers are facing “a big challenge” regarding SWIFT.

“It is a big problem for us. It is the main problem, you know,” he said.

Iranian PE has been offered into Europe, but pricewise these offer no particular advantages, according to one PE player.

It must be said though that information relating to Iranian petrochemical imports into the EU however is very patchy and sometimes conflicting.

In a statement, a source from Khorasan Petrochemical Company (KPC), part of Iran’s National Petrochemical Company (NPC), said it had started exporting melamine to Europe since the beginning of 2016.

The company identified The Netherlands and Germany as key exporting opportunities going forward.

Despite this, both buyers and sellers in the European market said they do not see Iranian melamine present in the market and have not seen any change in this so far this year. To top it all off, a number of players said they did not expect this situation to change for the foreseeable future. 

Iranian product is expected to have an impact, but it may take a little longer to be the game-changer that many were talking shortly after the sanctions had been lifted.

“Iran? – Lots of talk but not happening. They have a lot of capacity but not all of it is running. In 18 months’ time it could be a different story,” a petrochemicals source said.

Additional reporting by Caroline Murray, Matt Tudball, Katherine Sweeney and Tahir Ikram

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Focus article by Nel Weddle