Iran Petrochemicals Report Q1 2014 - New Study Released

From: Fast Market Research, Inc.
Published: Wed Dec 18 2013

The Iranian petrochemicals industry will continue to struggle with over-capacity in spite of predicted economic growth in 2014, due to ongoing international sanctions and slowing demand growth in its main export market, China. Only protectionism will shield the industry from a severe contraction, but there are risks of plant idling, postponement of projects and effective insolvency that will undermine the government's target of reaching a petrochemicals capacity of 100 million tonnes per annum (mn tpa) over the next five years.

Iran exported US$4.84bn petrochemical products in the first half of the current Iranian calendar year, which began on 21 March 2013; no volumes were indicated in government statistical releases. This would imply that the country is significantly undershooting its target of US$13bn for FY2013/14, when it hopes to export 17.4mn tonnes of petrochemicals products.

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The poorer than expected outcome could partly be explained by lower plant utilisation levels caused by feedstock shortages as well as some maintenance shut-downs. However, BMI believes that the country is struggling with the continued effects of sanctions, the gradual shift towards a more even supply-demand balance in China - Iran's main export market - and the lack of added value to exports.

Faced with a punitive sanctions regime that cuts it out of much of global trade, Iran's export-oriented petrochemicals sector is facing a bleak future while it continues to defy UN Security Council resolutions on its nuclear programme. EU financial sanctions have prompted insurers to refuse cover for cargoes from Iran. London is the global centre for shipping insurance and with the UK an EU member, Iranian petrochemicals exports will struggle to obtain cover. Likewise, shippers do not want to touch any trade that could risk business with clients such as major oil firms.

* The step-up in sanctions will only accelerate capital flight and cuts in foreign investment. In August 2013, South Africa's Sasol exited its Iranian joint venture at Assaluyeh, Arya Sasol. Its stake in Arya Sasol was sold to Main Street 1095, a South African subsidiary of an Iranian investor.
* The domestic petrochemicals market is currently in a slump and unable to absorb the rapid increase in production capacity. The economy contracted by an estimated 2.0% in 2013, although BMI expects a return to growth from 2014. In spite of the economic recovery, major petrochemicals consuming industries will lag behind, with the automotive industry set for anaemic growth while construction and agribusiness will flatline over the next five years.

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