Iran's 4m/year urea exports to be hit by potential US sanctions

09 May 2018 12:58 Source:ICIS News

Iran satellite

LONDON (ICIS)--US President Donald Trump’s decision to pull out of the Iran nuclear deal is expected to hit the country's urea fertilizer exports if sanctions are re-imposed, according to sources.

While Iran has not exported any urea to the US in recent years, it does significant business into Turkey, India and other markets such as Latin America, China and Europe, and all these businesses are done in US dollars.

Iran exported over 4m tonnes of urea in 2017.

It is too early to make an assessment on what the decline would be, but sources agreed that that Iran’s urea exports to Turkey and Europe may completely cease even as European countries have said they are committed to the nuclear deal.

This would be due to banking and other financial sanctions related to Iranians accessing US dollars. As a result, European companies working with Iran could face US sanctions if they do not wind down their businesses with Iran in the next 90 to 180 days.

“No US dollars business can be done with Iran, anyway. No new LC [letter of credit] is likely to be opened as no one will wish to risk any new actions until things are clear,” said a major African urea producer.

Another urea producer said: “This just killed EU and Turkey, especially traders who sell [Iranian] urea there.”

Meanwhile, India is expected to continue being a major customer of Iranian tonnes as it has been during previous sanctions, when the country devised a barter-like scheme that allowed it to make some payments to Tehran using the United Arab Emirates (UAE) dirham currency.

India imported 1.6m tonnes of granular urea from Iran in 2017.

“We are yet to see how it plays out. It is very difficult now to assess the impact. Its business as usual for traders [selling into India], no change,” according to a trader who sources urea from the Persian Gulf.

However, some believe the UAE may not be as cooperative this time around with currency barter.

“Earlier, UAE was not so hard on these [Iranian] deals. But now I hope things will be different,” according to a trader in India who competes with Iranian suppliers.

Others, however, still believe there is still some time for a renegotiation, with an international trader arguing that the US sanctions would only take place in August, potentially giving Trump time to “step back” from this week’s decision.

Other sources however showed scepticism about a potential renegotiation, with 90-180 days being the standard deadline for the sanctions to come into effect.

As for the impact on global urea prices, it is not clear how this issue will pan out. See graph below for the latest free on board (FOB) urea prices in Iran, Egypt and the Arab Gulf.

urea

Iranian urea production is bound to decline following the sanctions.

As a consequence, North African producers may get a bigger market share in Turkey while in India, which imported nearly 6m tonnes in 2017, it could also mean lower prices with Iran now having few outlets for its supply.

Iranian urea statistics
(Annual figures)

Production Capacity

6.7m tonnes (at full rates)

Domestic requirement

1.5m-2m tonnes

Exports

Around 4-4.5m tonnes in 2017

Exports to India

1.6m tonnes in 2017

Exports to Turkey

558,518 tonnes in 2017

Exports to Brazil

112,535 tonnes in 2017

Exports to China

109,590 tonnes in 2017


In related news, crude oil futures surged on Wednesday after the US announcement, as fresh sanctions on Iran could curtail the country's oil exports. 

Pictured: Satellite view of Iran
Source: Planet Observer/UIG/REX/Shutterstock

Focus article by Deepika Thapliyal 

By Deepika Thapliyal