Iran deal - reactions and implications for global petrochemical markets

 

 

Iran nuclear deal to alter Mideast polymer trade flows

15 July 2015 | Muhamad Fadhil

ABU DHABI (ICIS)--Iran may look to sell huge volumes of polymers to Europe once the sanctions are lifted following a landmark nuclear deal it reached with major world powers on 14 July, industry sources said on Wednesday.

This may trigger a major shift in trade flows of plastics raw material from the Middle East to Asia, while China may see fewer cargoes coming from Iran, they said.

“We will see a shift in trade flows in the next six months. With Iran in the picture, the Middle East polymer scene will change,” according to a Dubai-based petrochemical trader.

On 14 July, Iran and the six world powers struck a landmark comprehensive agreement to curb the Tehran’s nuclear activities in exchange for the lifting of the crippling economic and financial sanctions imposed on the country.

The lifting of the sanctions may not happen until after six months but Middle East players are bracing for Iran’s re-entry into the market, given its previous status as a major exporter of crude and petrochemicals.

Iran is part of the 12-member oil cartel OPEC.

The Middle Eastern country can resume polymer exports to Europe once the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system starts approving transactions originating from and heading towards Iran, industry sources said.

The resumption of SWIFT, an international network allowing the transfer of funds, will facilitate trade between Europe and Iran.

The process to allow the resumption of SWIFT may take months, industry sources said.

China, which became Iran’s major market when the sanctions were imposed, will likely see a dwindling of supply from the Middle Eastern country.

Without the sanctions, Iran may prefer to sell to Europe given its proximity.

“China will likely see fewer cargoes from Iran emerging,” a source close to an Iranian producer said.

Iran is expected to export at least 30% less polymers to China, industry sources said.

However, at least two Dubai-based traders said Iran will continue to sell significant volumes to China, Asia’s biggest polymer market.

“Despite China’s recent self-sufficiency, you cannot ignore such a big market,” one of the traders said.

Over the years, China has been building up its petrochemical capacity to reduce its reliance on imports.

With the emergence of domestic coal-to-olefins (CTO) and methanol-to-olefins (MTO) production, China is expected to import less polymer volumes in the coming years, industry sources said.

As of end-June, MTO and CTO account for 18.4% or 5.96m tonnes/year of domestic polymer production in China, according to ICIS data.

Once the ban on using SWIFT is lifted, major suppliers in Saudi Arabia, Qatar and the UAE will compete directly with Iran in Europe, forcing them to offer polyethylene (PE) at lower levels.

“Saudi, Qatar and UAE may be forced to sell more to Asia because of increased competition in Europe,” said a Saudi based polymer source.

Due to the changing dynamics, Saudi Arabia, a major polymer producer, may end up selling more to China, according to a source close to a Middle East producer.

“Saudi will work quickly to improve its distribution links in China as Iran targets to sell more volumes in Europe,” the source said.


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Iran nuclear deal reached; crude oversupply concerns heighten

14 July 2015 10:00 | Muhamad Fadhil and additional reporting by James Dennis

ABU DHABI (ICIS)--Iran and six world powers agreed on a landmark comprehensive deal over Tehran’s nuclear programme that would translate to a gradual removal of crippling sanctions imposed on the Middle Eastern country.

Details of the deal reached on Tuesday – including the scope of sanctions relief for Iran and the range of access international nuclear inspectors will be granted over the country’s nuclear sites are expected to be announced later in the day.

Oil prices fell by more than 2% as news of the deal broke as oversupply concerns heightened with Iran’s expected re-entry into the market as a major exporter.

Iran is part of the 12-member oil cartel OPEC.

“Crude prices are set for more volatility with Iran back,” according to a Dubai-based petrochemical trader.

At 08:18 GMT, August Brent crude on London’s ICE futures exchange was trading at $56.86/bbl, down by $0.99/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $56.61/bbl, down by $1.24/bbl.

August NYMEX light sweet crude futures (WTI) were trading at $51.24/bbl, down by $0.96/bbl from the previous close. Earlier, the US benchmark fell to a low of $50.41/bbl, down $1.79/bbl.

Apart from increased crude supply, the global market may find itself flooded with key petrochemical products such as polyethylene (PE) and methanol when Iran re-enters the market, according to industry sources in the Middle East.

“Saudi Arabia will be worried about an Iranian re-entry. Iran can now compete freely in Europe,” according to a source close to an Iranian supplier.

When the sanctions are lifted, Iran will look to increase its crude and petrochemical output.

“Iranians had been waiting for this for a long time. The government will look to boost its energy output almost immediately,” said a Middle East-based petrochemical industry source.

Iran aims to bump up total petrochemical production capacity to 100m tonnes/year by end-2015, from 60m tonnes/year in 2012, data from state-owned National Petrochemical Company (NPC) showed.

The sanctions, which were imposed on suspicion that Iran is developing a nuclear weapon, prevented the country from selling its petrochemical and crude output to Europe.

In end-2011, the US introduced sanctions against Iran’s financial sector, while in July 2012, the EU froze the assets of Iran’s central bank and banned trades of Iranian products.

The six world powers – the US, UK, France, China, Russia and Germany – also known as P5+1, want Iran to scale back its nuclear activities to prevent it from building a nuclear weapon.

Iran has maintained that its uranium enrichment activities are strictly for energy generation.

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Asian petchem markets not heavily weighed by Iran deal

14 July 2015| Nurluqman Suratman

SINGAPORE (ICIS)--Petrochemical market participants in Asia reacted cautiously to the Iran nuclear deal saying they do not expect much impact in the immediate term on their businesses.

However, long term impact was too early to comment upon, they said.

Crude future fell by more than $1/bbl on news of the Iran deal.

In the petrochemical markets though Asian polymer producers seemed nonplussed and said that there will be no immediate impact on the regional market.

“I heard that Iranian new oil supply will not come to the market until at least 2016 so maybe the impact will be oil first in 2016,” a polymer producer said. “I doubt there’s any impact on polymersm.”

Another producer said that it might take Iran a few months to ramp up oil production. 

“If crude oil price dropped, the price of its derivatives will go down too but there will be a time lag,” added a trader.

However, buying ideas for propylene in Asia are expected to fall following the Iranian deal.

“Buying ideas will certainly be lowered for propylene now that the deal with Iran has been struck and oil has started to drop sharply,” a northeast Asian trader said.

Indian PTA producers, meanwhile, were nonchalant about Iran sanctions being lifted, as India has sufficient PTA capacity and does not need to import Iranian PTA.

“It ultimately depends on how much Iranian crude can come into the market and how much of an impact this will have on crude prices,” a source in India said.

An Indian petrochemical producer added: “Generally speaking, lower oil and raw material prices is good news for the Indian economy.”

In the Asian synthetic rubber market, the expected downtrend in crude oil prices will weigh even more heavily on prices going forward.

“Demand for styrene butadiene rubber (SBR) is soft, and falling crude prices will put more downward pressure on SBR prices,” a rubber trader said.

Details on the terms of the Iranian deal were not immediately available.

Ministers from Iran and the major powers will thrash out a deal following a 12-year stand-off  over the country’s nuclear programme in a meeting in Vienna at 10:30 hours local time (08:30 GMT) on Tuesday for a “final plenary”, EU spokeswoman Catherine Ray wrote on her Twitter account.

This will be followed by a news conference at the, she added.

The P5+1 grouping – made up of the US, UK, France, China and Russia and Germany – have been holding negotiations with Iran for the past two weeks for an agreement on its nuclear programme.

Iran has maintained that its uranium enrichment activities are strictly for energy generation.

Additional reporting by Felita Widjaja, Paul Lim, Helen Yan, Michelle Lim, Trisha Huang

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Asia naphtha extends crude-led losses after Iran deal

14 July 2015 10:00

SINGAPORE (ICIS)--Asia’s naphtha prices extended their crude-led losses on Tuesday, hitting a five-month low of $486.50-488.50/tonne, after the Iranian nuclear deal finally came through, traders said.

Open-spec prices for the second half of August were assessed lower by $8.50/tonne compared with Monday’s levels, ICIS data showed.

At $486.50-488.50/tonne CFR Japan, prices were at their weakest since 10 February.

Iran and six world powers agreed on a landmark comprehensive deal over Tehran’s nuclear programme that would translate to a gradual removal of crippling sanctions imposed on the Middle Eastern country.

“It should be bearish across the board, for all products,” said a trader in Singapore.

Details of the nuclear deal reached on Tuesday – including the scope of sanctions relief for Iran and the range of access international nuclear inspectors will be granted over the country’s nuclear sites – are expected to be announced later in the day.

Oil prices fell by more than 2% as news of the deal broke as oversupply concerns heightened with Iran’s expected re-entry into the market as a major exporter.
Iran is part of the 12-member oil cartel OPEC.

Meanwhile, the naphtha crack spread slumped to $61.20/tonne against August Brent crude futures, with the crack spread pegged at their lowest level since 26 January this year, ICIS data showed.

The naphtha market was further undermined by a supply glut and tepid demand in Asia, as petrochemical demand appetite in China, the world’s second-biggest economy, is on a decline.

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No immediate impact on Turkey PP, PE following Iran deal

14 July 2015 | Matt Tudball

LONDON (ICIS)--A deal reached between Iran and six world powers this morning over Tehran’s nuclear programme and the gradual removal of sanctions will not have an immediate impact on Turkey’s polyethylene (PE) and polypropylene (PP) markets because of the Eid al-Fitr religious holiday, sources said Tuesday.

Details of the deal reached on Tuesday - including the scope of sanctions relief for Iran and the range of access international nuclear inspectors will be granted over the country’s nuclear sites - are expected to be announced later in the day.

Crude oil prices dropped in the aftermath of the deal, with the return of Iranian crude welcomed by refiners in the Mediterranean who have found themselves short of sour crude since sanctions were raised against Iran.

Players in the Turkish market said the Eid al-Fitr holiday, which begins in Turkey on 16 July, will limit trading activity, with a better picture of any immediate impact on Iranian CPT (carriage paid to) Turkey prices expected to emerge from late next week when players return to the market.

However, bids and offers in Turkey and Iran were heard lower this week ahead of the holiday.

“Both Iran and Turkey are going on a long holiday, so our customers prefer to limit deals to next week. If they buy this week, they offer very low,” a Iranian PP producer said. Offers of $1,170/tonne FCA Iran were being rejected by buyers, it said.

However, it added that, following the deal: “Everyone is expecting prices of raw materials will decrease. In [the Iranian] domestic market they are buying as low as possible, postponing queries”.

Prices for PP fibre were heard offered at $1,250/tonne CPT Turkey, a Turkish trader said.

Following the deal the US dollar strengthened against the Iranian rial, sources in Iran said, meaning exporters in the country will see their netbacks to countries such as China reduce.

The drop in the rial will also impact transportation costs to Turkey, with the vast majority of material being sent across the border by truck.

One trucking company in Iran approached a supplier this week offering to carry cargo from Assaluyeh to Gaziantep for $60/tonne as opposed to the usual $80-85/tonne because of a slowdown in demand.

However, with the drop in currency and the possibility of higher demand post-Eid as Turkish buyers re-stock, transportation costs could reach as high as $100/tonne, an Iranian trader said.

Looking at the wider petrochemical picture in light of the deal, exactly how long it will be before raw material prices fall as some expect, or when exports of materials including PE and PP out of Iran to countries in the EU, is open to question, however.

“There are no [good] shipping lines [in Iran],” a Turkish trader said, adding: “Even if they lift [the sanctions] today, it'll take 5-6 months before material can leave [the country].”

Iran has ambitious plans for its petrochemical production capacity, however, with the country aiming to bump up total petrochemical production capacity to 100m tonnes/year by end-2015, from 60m tonnes/year in 2012, data from state-owned National Petrochemical Company (NPC) showed.

What is clear, however, is that many players in the petrochemical world will be watching the outcome of the historic deal with interest.

Additional reporting by Muhamad Fadhil

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Iran deal rekindles hopes of gas pipeline with Pakistan

14 July 2015 10:00

KARACHI (ICIS)--Energy-hungry Pakistan hopes a deal over Iran's nuclear programme with the western powers will help it complete a long-delayed gas pipeline project with Tehran, its petroleum minister said on Tuesday.

“We will wait for the phase when sanctions on gas will gradually be removed to restart the process where it was stopped last year," Pakistan’s petroleum and natural resources minister Shahid Khaqan Abbasi told ICIS.

“Still we consider major hurdles in completing the pipeline have now been removed.”

Abbasi said the deal being reached between Iran and western powers over its nuclear programme will not have an immediate impact on the gas pipeline project which the country shelved in March 2014.

“Pakistan would only receive gas from the neighbouring country as soon as the sanctions are lifted.”

Pakistan’s national security adviser Sartaj Aziz “welcomed” the deal and hoped it would remove the long opposition of US to construct the Iran-Pakistan gas pipeline.

“This would help establishing stability in the region. It will also help push IP gas pipeline project forward,” Aziz said.

Pakistan shelved the multibillion-dollar gas pipeline project after the country failed to secure funds to build its section of the pipeline due to a lack of interest from financial institutions and international oil and gas companies on the US opposition of the Iran-Pakistan pipeline project, following sanctions imposed on Tehran.

The controversial pipeline project was planned and hopes to ease Pakistan’s chronic gas shortage.

Abbasi said the government is building a pipeline in the coastal city of Gwadar, which is the main part of the Iran-Pakistan gas pipeline project and will later be extended to Nawabshah in southern Sindh province.

“We are also constructing the pipeline till Iran border from Gawader and all these (pipelines) will be completed in April 2017… we can connect with Iran when sanctions on gas sales lift,” the minister said.

The pipeline from Gwadar to Iran's border (about 80 km/50 miles) will be built by state-run utilities Sui Northern Gas Pipelines Limited and Sui Southern Gas Company.

The Iranian side of the $7.5bn project is almost complete but Pakistan has been running into repeated problems paying for the 780km (485 miles) section to be built on its side of the border.

Abbasi said the price of natural gas was agreed at $12 per million metric British thermal unit (MMBtu), if crude oil price stood at $100/bbl in the international market.

“We are in touch with Iranian authorities and there is no need of any further negotiations or agreement as everything like gas pricing contract, annual fee etc is already in place,” Abbasi said.

Iran has the second largest gas reserves in the world but has been strangled by a western embargo that has seen its crude exports slashed by half in the past year.

It currently produces around 600m cubic metre (cbm) of gas per day, almost all of which is consumed domestically due to lack of exports. Its only foreign client is Turkey, which buys about 30m cbm of gas per day.

Pakistan is currently facing huge shortfalls in its energy demands and is desperately exploring all options to meet the needs. The country’s demand for gas stands at 8bn cubic feet, while the current production is 4bn cubic feet.


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Germany exporters, chems welcome Iran nuclear deal

14 July 2015

LONDON (ICIS)--Germany-based industrial trade group BDI on Tuesday welcomed the international agreement reached over Iran’s nuclear energy programme.

BDI said that with the lifting of sanctions against Iran, Germany's export trade with that country should rise to more than €10bn/year over the medium term, from €2.4bn in 2014.

The group pointed in particular to Germany’s chemical industry, along with the automobile, engineering and machinery sectors, as key beneficiaries.

The modernisation of Iran’s oil and related downstream sectors should open up "big market chances" for Germany-based engineering firms and plant builders, said BDI president Ulrich Grillo.

The country, with a population of around 80m and a young, educated middle class, is an important export market for Germany, Grillo said.

He called for a quick resumption of SWIFT banking transfers to and from Iran, as well as measures to help German exporters raise finance for their exports to Iran.

Germany's chemical producers’ trade group VCI is a member of BDI.

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