Iran may divert petrochemical cargoes meant for European markets to Asia if a new set of sanctions imposed by the European Union on Tehran is seen to affect exports, Middle East petrochemical markets analysts said this week.
The European Union agreed last Thursday to impose new sanctions against 180 Iranian officials and firms. Although the names of the firms have not been declared, the list is expected to include petrochemical companies.
The EU move follows a new set of sanctions imposed by the US on Iranian petrochemical firms on November 21 -- the latest in a series of moves designed to put pressure on Tehran over its nuclear program.
The US sanctions which target the petrochemicals sector for the first time aim to stop foreign transactions worth as little as $1 million linked to Iranian entities.
"If the Iranians get pushed out of the European market then you could have more Iranian product moving to China rather than less," said Sriharsha Pappu a Middle East-based research analyst with HSBC Bank.
"Iran currently has 15% share of Western European polyethylene imports. Its worth keeping in mind that the sanctions regime has been in place for a while, yet Iran is still a top five exporter to both China and to Europe," he added.
CHINESE BUSINESS
From January to October 2011, Iran was the third largest exporter of HDPE to China, exporting a total of 336,303 mt or nearly 12% of China's total HDPE imports, according to Chinese Customs data.
Iran exported a total of 253,570 mt of LDPE in the same period, accounting for about 21.3% of China's total LDPE imports during the period. Iran exported a total of 73,025 mt of LLDPE to China in the period January-October 2011, constituting about 3.6% of China's total import of the product.
Exports to destinations other than China have also been strong so far, Masoumeh Dorri, managing director of Iran's Petrochemical Commercial Company's, or PCC's Dubai based operations told Platts.
"In the first ten months this year, we exported 300,000 mt of petrochemicals -- mostly polymers and methanol -- in India and the UAE alone. This is a rise of 500 mt over the corresponding figure in 2010," he said. "We continue to export a good volume of our products to the Gulf Cooperation Council countries including Saudi Arabia, Qatar and the UAE."
A trader with an Indian petrochemicals trading company known to deal in Iranian cargoes said he saw problems ahead but did not expect his volumes to be hit.
Industry sources said traders were using the network of currency exchanges, online transfers and payments by cheque that are accepted by Iranian banks.
PROJECT FINANCING
The age old practice of 'hawala' is also being used. Hawala involves paying the amount to be remitted to an agent in the sender's country, and later, the agent's appointee in the country where the money is to be remitted makes the end-payment.
As a solution to the lack of external financing due to sanctions, Iran may fall back on its own resources. About 20% of Iran's proceeds from its oil and gas sales go to its National Development Fund, or NDF.
The NDF invests about 5% of its annual income into petrochemical projects, and an Iran based consultant said that this figure may be raised to 10%.
Foreign companies partnering in Iran's petrochemical projects have been reported to be delaying or leaving proposed ventures.
Recently, South African petrochemicals producer Sasol which has a 50 percent stake in Arya Sasol Polymer company, a joint venture with Pars Petrochemical Company of Iran, said that it may divest from the venture which produces ethylene and polyethylene.
There was talk of Russian petrochemicals giant Sibur stepping in to help Iran but the company recently said it had no such intention.
The foreign ministry of South Korea announced this week that it is considering a US request to stop petrochemicals trade with Iran. South Korea is one of the largest buyers of Iranian petrochemicals products.
