Webinar: Post-Iran Sanctions - What this means for Middle East polymers
ICIS hosted a webinar on 16 March 2016 which delves into the impact of the Iran sanctions being lifted on the Middle East polymers market. By accessing the recording and presentation slides, you gain access to all of the following:
Infographic: The lifting of Iranian Sanctions
On 16 January, world powers lifted the sanctions after the UN confirmed that Tehran has curbed its nuclear programme. With the lifting of sanctions, Iran can now participate in global trading.
ICIS has produced an infographic showing the possible impact of the lifting of the sanctions on the world of petrochemicals.
Post-sanctions Iran roils crude market; petchem may follow suit
Published on 18 January 2016
Oil prices are expected to continue falling on heightened concerns about oversupply, with Iran now free to compete in the global export market after international sanctions on the country were officially lifted over the weekend, industry sources said.
Price volatility is expected to permeate the downstream petrochemical markets in the near term, they said.
Crude fell by more than $1/bbl on Monday morning but eased off towards the end of the trading day in Asia. Prices are currently at their lowest since late-2003.
Prices fell amid expectations that Tehran will raise exports significantly in the coming months and aggravate the market glut, which has sent crude falling since the second half of 2014.
International economic and financial sanctions were imposed on Iran on suspicion that the country was developing a nuclear weapon.
But on 16 January, the world powers lifted the sanctions after the United Nations (UN) confirmed that Tehran has curbed its nuclear programme and has complied with the terms of their July 2015 comprehensive agreement.
Iran is a major oil exporter and is a member of the oil cartel OPEC.
“What this says is volatility will continue in the oil and its downstream petrochemical markets for the next one to two years,” said Ewe Ee Foong, ICIS vice president of Business Development & Consulting.
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ICIS Consulting, which provides insight into commodity markets via consultancy and data services, operates independently of ICIS News.
Prior to the lifting of sanctions, Iran had been exporting around 1.1m bbl/day of oil, principally to Asian buyers. The country has been producing just under 2.9m bbl/day, compared with 3.6m bbl/day prior to the implementation of tighter sanctions in 2011.
“With Iran back into the picture, the price of oil is set to be driven down purely on sentiment and speculation,” said a banker based in the Middle East.
Prices of naphtha and key petrochemicals such as benzene, toluene, ethylene and propylene in Asia moved in tandem with crude – tumbling in early trade but managed to pare down losses towards the end of the day.
At 10:00 GM, US crude was down 15 cents at $29.27/bbl, while BRENT crude stood at $28.85/bbl, down 9 cents from the previous day.
“With the sanctions lifted, oil prices will see further declines. We are really worried this could lead to more price volatility further downstream,” a source close to a Middle East energy producer said.
Crude prices fell below $30/bbl levels last week to 12-year lows on concerns about oversupply.
"Lower oil prices normally lead to lower product margins, especially for non-integrated producers. All companies should take this opportunity to relook at their cost structures. And take the ride on such low oil price scenarios to weed out inefficiencies," Ewe of ICIS Consulting said.
On the naphtha front, prices have plummeted to multi-year lows, falling towards $310/bbl on Monday amid crude losses. Market sentiment turned even more sombre now that the sanctions were lifted in Iran.
“The market will be more bearish in general. There will be more oil products,” said one trader, adding Iran is not a huge exporter of naphtha as opposed to other Middle Eastern producers.
In Iran, naphtha is typically being used in gasoline blending domestically so as to meet the local demand, especially with gasoline prices being considered to be one of the lowest globally.
The lifting of sanctions will unfreeze Iran’s $100bn worth of assets and allow the country to sell oil to Europe.
Immediately after the announcement of the lifting of sanctions, Iran’s deputy oil minister Amir Hossein came out to say that Tehran could increase crude exports by 500,000 bbl/day.
Most of the new Iranian exports are expected to come from substantial volumes stored at sea. As of end-November, Iran has an estimated 36m barrels of oil held at sea in tankers, according to the International Energy Agency (IEA).
“We are watching the developments closely. If Iran increases supply, oil prices will plunge,” a Qatar-based petrochemical source said.
The announcement to lift sanctions on Saturday, seen as unexpected by some given its speed of implementation, came just a month before Iranians vote in a crucial parliamentary election.
Market players expect stiff competition when Iran re-joins the Society for Worldwide Interbank Financial Telecommunication (SWIFT) services network, although it remains unclear when exactly this would happen.
“Once Iran can access SWIFT, the country can start to participate in international trade once again,” said a source close to a major US-based energy distributor.
Iranian petrochemical suppliers plan to divert about a fifth of their cargoes from China to Europe once the international sanctions are lifted, industry sources said.
Industry sources expect the diversion of export cargoes to include polyethylene (PE) as the opportunity to sell to Europe re-opens.
“We would like to re-establish our links in Europe but at the same time not abandon our partners in China,” a source close to an Iranian petrochemical supplier said.
China absorbed about half of the Middle Eastern country’s PE production in 2015, industry sources said.
The lifting of the sanctions on Iran would also help the country generate the investments needed to pursue plans to ramp up production.<
Iran’s plans to more than double its annual petrochemical production capacity from 59m tonnes will depend largely on foreign direct investments from Europe and Asia, industry sources said.
“Iranian companies had been waiting for this [lifting of sanctions] and they are intending to ramp up productions of petrochemical products, including PE, and sell to the rest of the world where there is demand now,” said a PE producer in southeast Asia.
PE prices in southeast Asia are expected to come under pressure as Iranian producers might offer at below market to win back customers, a regional trader said.
At this stage, nobody knows exactly what changes will take place with the lifting of the Iranian sanctions. While the circumstances evolve and the world awaits clarity, Accuity, part of Reed Business Information like ICIS, has come up with an infographic aiming to break down the sanctions list and make predictions based on Accuity's extensive risk data.
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