Iran’s urea industry finds new ways to survive as sanctions tighten

LONDON (ICIS)–Iranian urea producers are expected to struggle further to export the fertilizer after the US ended waivers on sanctions, and are focusing on non-traditional markets to place product.

– Iran exporting to Brazil, Turkey

– Iranian prices at sharp discount

– Future uncertain for Iranian business

Iran, satellite image. Source: Planet Observer/UIG/REX/Shutterstock

While these waivers were for oil and did not include fertilizers, the market is taking the new clampdown on Iran as a sign sanctions are likely to remain in place indefinitely.

The Trump administration on 22 April said it would not renew waivers that allowed eight countries to buy Iranian oil without facing US sanctions.

The current set of waivers – issued to China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey – expire on 2 May.

“This is the big story to some extent. This development will prevent Iranians to export urea and for them [Iran] shutting down plants is difficult,” said an international urea trader.

“They are already pushing product to other destinations, through routes that are not evident.”

The waiver expiry would further restrict Iranian urea supply into Asia, where countries such as India have adhered to the US sanctions, by at least not directly importing Iranian urea.

In 2018, India purchased Iranian urea which was re-exported from China, but these shipments are drying up in 2019.

Iranian trade to Brazil is, however, expected to continue with recent urea business concluded on a barter arrangement for corn.

Turkey also may continue business as payments for Iranian cargoes are made in the local currency.

However, even buyers in Turkey and Brazil admit that the process is not easy.

“A bank would be somehow involved in this transaction, even if it’s barter, so it should affect business,” said a Brazilian buyer.

Another buyer added: “Iran in Brazil: it’s a reality – product has arrived and product is still coming.”

Iranian urea is priced at a significant discount to material from other origins and is often at least $20/tonne less expensive to buy.

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“[The Iranian] business model has changed so they will continue to sell. But it will be difficult for them to get volumes of the size they have done before,” said an Iranian supplier.

Another trader was hopeful the US would focus on Iranian crude oil rather than urea.

“Oil is focus for the US. Urea will continue. They [Iran[ already sold 240,000 tonnes to Brazil. A cargo just left for China and also some 20,000 tonnes for southeast Asia,” it said.

Iran’s urea exports in 2018 increased 26% year on year to nearly 4.2m tonnes, despite US sanctions, according to data from The Islamic Republic of Iran Customs Administration via Trade Data Monitor (TDM).

The increase was due to higher production in the country and the initial limited impact of US sanctions, which were imposed on 6 August 2018, with the final deadline effective 4 November 2018.

The main destination for Iranian urea in 2018 was India, at 1.9m tonnes, followed by Turkey at nearly 400,000 tonnes.

Over 800,000 tonnes was exported from Iran to China in 2018 but this was mainly for re-export to other markets such as India and southeast Asia, as well as Africa.

China has recently clamped down on re-export activities because they increase competition for Chinese urea exporters.

The impact of the sanctions on exports has been significant in 2019.

In January-February, Iranian exports declined 43% year on year to 493,378 tonnes, according to TDM.

The main market for Iran in 2019 has been Turkey, which accounted for over 49% of its total exports in January-February.

The other markets were Iraq and China (reexport).

Meanwhile, the US’ decision to end waivers has been slammed by the Turkish foreign minister, while China formally complained to the US.

India said it would observe the sanctions.

For most in the urea market, it is time to wait and watch how Iran is able to circumvent the sanctions.

With the Indian season due to begin soon, lack of Iranian supply, coupled with China’s focus on its domestic market rather than on exports, would continue to support international urea prices.

Focus article by Deepika Thapliyal

Additional reporting by Julia Meehan