ANALYSIS: What would an Iran nuclear deal mean for petrochemicals?

London (Platts)--2 Apr 2015 1054 am EDT/1454 GMT

In Switzerland this week, negotiators and diplomats from the five permanent members of the UN Security Council, Germany and Iran have been locked in talks over whether, how and when to lift sanctions on Iran.

Having been choked off from the international banking community, its exports of key petrochemical products -- methanol and polyethylene -- have shrivelled, with material largely being exported in exchange for cash through Dubai and banking mechanisms that work directly with China, India and South Korea. The current meeting in Lausanne is the end of a 12-month process that could see Iran once again become one of the world's major exporter of plastics.

The US and EU on January 20, 2014, suspended certain sanctions on Iran's petrochemical trade for six months, a temporary reprieve that was later extended for a further six months.

On the table in Switzerland is a permanent lifting of sanctions that could see banks once again be prepared to finance trade in plastics and petrochemical products.

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Iranian petrochemicals production capacity is expected to rise considerably over the next 10 years. The pace of expansion that has so far been stymied by sanctions is expected to gather momentum should sanctions be lifted. An ease in sanctions is expected to expedite transfer of essential technologies and import of catalysts thus speeding up the construction of new plants.

"We expect the Iranian annual polyethylene production capacity to rise by at least 2 million mt over the next 10 years. This figure could well reach 3 million mt if the business environment remains suitable for the country," Hetain Mistry a senior petrochemicals analyst at Platts said. Current Iranian PE capacity is put at 3.7 million mt/year.

Iran plans to raise its methanol production capacity to 25 million mt/year over the next five years and aims to establish itself as the largest global supplier of the product in the world, a Press TV report in February said. Iran is constructing a 2,700-km (1,674-mile) pipeline to transport ethylene from Assaluyeh in the south to downstream polyethylene plants in the west of the country.

But while an easing of sanctions could lead to an investment boom in Iran over the longer term, in the short- and medium-term it is likely to have a limited impact as most Iranian products have been finding a home in Asia.

Over the past year China imported 1.6 million mt of PE from Iran and 1.63 million mt of methanol, according to Chinese Customs Data.

Meanwhile, India imported almost 900,000 mt of methanol from Iran in 2013-14 (April-March )and smaller parcels of polyethylene.

"Easing of sanctions will give the Iranians more choices for exports. They have not been exporting cargoes to Europe right now and that trade may begin," an official at Sinopec Corp. said. Sinopec Corp. has an office in Tehran and its trading arm Sinopec Chemical Corporation Holding (Hong Kong) Company Limited runs an office in Dubai.

So volumes of exports may not increase, but European buyers may be faced with a greater choice of suppliers. Contingent upon that, however, is that a permanent deal is sealed as the 12-month temporary reprieve had little impact on petrochemicals trade between Iran and the West as international banks were not willing to open letters of credit for Iranian cargoes for fear of later reprisals from the US. "We will need an easing in banking restrictions for any considerable impact on Iranian trade. Once major banks issuing letters of credit to Iranian companies, you can have high volumes of products like polyethylene, methanol and MTBE moving out of Iran," a Dubai based trader said.

One place expected to benefit will be the trading hub of Dubai. Trading companies especially from major consumption centers of India and China began setting up and expanding offices in the Emirate and Tehran since end-2013 in anticipation of greater petrochemical supplies from Iran. Some of the major companies closely watching Iranian trade include Chinese giant Sinopec and Indian trading major Hazel Mercantile.

--Andrew Allan,
--Shashank Shekhar,
--Edited by Jonathan Dart,

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