By Ross Yeo
LONDON (ICIS)--The recent deal struck by Iran to curb its nuclear programme in exchange for relief from international trade sanctions could result in a more balanced global methanol market, European sources have said.
Ever since the EU banned the import of Iranian oil and petrochemicals in January 2012, before which the US had already implemented similar sanctions, the only effective outlets for Iranian methanol have been China and India.
Prior to this, approximately 500,000 tonnes/year of Iranian methanol flowed to Europe, out of a nameplate production capacity of around 5m tonnes/year.
Although there was an initial tightening of the European market while global trade flows were re-adjusted, the absent Iranian volumes were replaced with material from other origins, and there is no longer any direct impact on the European market.
However, one lasting impact of the sanctions, according to market sources, has been more prolonged and exaggerated price differences between the Atlantic and Asian methanol markets.
The explanation for this is that Iran was traditionally the most flexible producer in the Middle East. Producers would often sell to traders on a spot basis, rather than engaging in term supply contracts.
This flexibility meant that Iran provided important swing capacity that could take advantage of regional price discrepancies, and thereby facilitated global price parity.
For much of 2013 there was a large price difference between the Atlantic and Asian markets that persisted for much longer than many observers expected. The US and Europe were tight, while Asia was oversupplied.
Eventually, the price gap became wide enough to make it worth shipping methanol from China to the US.
However, if Middle Eastern producers had been able to divert some supply from Asia Pacific to Europe, a smaller price difference would have been necessary, and the market would have been balanced earlier.
“If Iran comes back… it could contribute to the disappearance of these anomalies,” said a trader.