MUMBAI (ICIS)--Iranian methanol producers have started to tighten the payment terms for their cargoes flowing into India following recent credit issues, according to Indian traders and end-users on Friday.
One spot tender offer of Iranian origin methanol into the Indian market this week came with a payment term of 100% cash in advance – which is unusual in past dealings.
India is a major market for methanol, with last year’s imports pegged at 1.72m tonnes, at least 70% of which came from Iran, industry players said.
Into the west coast of India, Iranian material accounts for well above 80-90% of total methanol imports in recent years, they said.
Iranian producers generally require 10-30% cash in advance, depending on customers, for their methanol cargoes offered to India, with the balance to be paid over 30 days, according to importers and traders.
But a recent deferred payment and a possible credit default from two different India-based traders prompted Iranian producers to mull tighter payment terms.
“In view of the current business conditions in not only the methanol market, but the broader economic situation, it is very logical that Iranian producers are to be more cautious with issuing credit,” a trader said.
The spot tender with the 100% cash-advance payment term was met with a strong resistance from Indian buyers, market sources said.
“No bidders will be willing to accept such credit terms, given the current market conditions,” said one importer.
“The margins for methanol trading has been squeezed consistently due to slow-moving downstream sectors and it will be hard for buyers to take on additional risks by accepting such payment terms,” the importer said.
A separate end-user echoed the same sentiment on the newly introduced stringent payment terms.
“It is now a buyers’ market with ample spot material of various origins being available in the market,” another end-user said.
But the move may also have some positive consequences in the overall Indian methanol market, some industry players said.
“The [methanol] market has long been seeing opportunistic trading activities from traders who took advantage of the current payment terms being offered by the Iranian producers,” said a key Indian trader.
“The tightening of payment terms may raise the barrier of entry and hence, reduce irresponsible trading activities in the spot market,” according to the trader.
“Market players will become more cautious in taking irrational trading positions when the risk of trading become higher,” the trader said.
Focus article by Yu Guo
Picture: Kochi port in Kerala, India (Photographer: Olaf Kruger/imageBROKER/REX/Shutterstock)