Iranian rial collapse unlikely to boost petrochemical exports

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SINGAPORE (ICIS) – Iran’s petrochemical exports may not get a major boost following the recent drop in the rial – sparked by speculation about further sanctions from the United States – as the Most of the cargo is shipped under forward contracts, especially to its key market – China.

The official and free market exchange rates of the rial (IR) against the US dollar were unified on April 9 at IR 42,000 to prevent the currency from falling further, after falling 20% ​​in just two weeks from end of March.

The United States, under President Donald Trump, threatened to withdraw from the nuclear deal negotiated between Iran and six world superpowers. Trump has set a May 12 deadline for the United States’ decision.

The unified rial exchange rate represents a depreciation of about 14% against the official rate of IR 37,000 at $ 1; but 30% stronger than the previous market exchange rate of IR 60,000.

Iran’s central bank also set a ceiling of 10,000 euros on April 10 on foreign currencies that citizens can hold outside banks, according to media reports.

The fall in the value of the rial should technically allow Iran to offer much more competitive prices for its petrochemical exports, including methanol and polyethylene (PE), but there are constraints preventing increased trade with its main markets, apart from payment problems linked to international sanctions which hamper shipments. entering and leaving the country.

“It could actually mean more sales for us, as our exports get cheaper and our prices get better for buyers. We use the banking facilities provided by Chinese banks and our transactions are in euros or (US) dollars, ”said a source at an Iran-based producer.

Iran sees China as a major export market for the EP. In 2017, Iranian shipments accounted for around 17% of China’s total PE imports.

The volume is not expected to increase significantly as cargoes are shipped on long-term contracts and not on a one-off basis.

Suppliers will find it difficult to immediately adjust their pricing formula to take into account changes in the rial exchange rate, industry sources said.

Iran also exports PE to Vietnam from time to time, but the total volume is minimal in terms of the overall Southeast Asia market, which is also served by regular suppliers from Asia and the Middle East. , including Saudi Arabia.

In India, Iran’s PE shipments amounted to 57,707 tonnes, which represented 4.6% of the South Asian country’s polymer imports, in the fiscal year ending March 2018.

Trade with India is cash and should be more responsive to exchange rate fluctuations.

But India’s dependence on imports has declined over the past two years as domestic capacity has expanded.

On the Iran side, suppliers have moved away from the Indian market since Q3 2017 to supply more volumes to China, where net revenues have been better amid higher prices.

Imports of PE from Iran are generally made on a cash advance basis in India.

The achievable purchasing levels for these are generally $ 40-50 / tonne lower than for cargo originating in the Gulf Cooperation Council (GCC) region which is purchased on the basis of a letter of credit ( LC) of 90 days. This need to pay in advance has a limiting effect on India’s supply of Iranian PE.

In Iran, the supply of PE would be reduced by scheduled rotations at its factories in April and May, limiting the availability of one-off cargoes for exports, industry sources said.

For methanol, Iran exports a significant share to China. Last year, Iranian methanol at 2.52 million tonnes accounted for 31% of China’s total methanol imports of 8.14 million tonnes, according to official data.

But Iranian methanol producers have already maximized their export sales to China, leaving no room for increased shipments, industry sources said.

Iranian melamine producer said falling rial has no impact on the US dollar-denominated prices of its exports to India and Turkey as it makes adjustments based on broader international market trends .

The depreciation of the rial, however, could fuel an increase in domestic melamine prices in Iran, the producer said.

The impact has “more to do with supply
[of raw materials]Another source from an Iranian petrochemical producer said, adding that the currency’s decline “could affect our domestic sales.”

Iran could face further pressure in the weeks leading up to May 12, when Trump will make a decision on the nuclear deal.

International sanctions against Iran have been lifted in 2016, when the historic nuclear deal was reached between the country and the six world superpowers, which called for the reduction of Iran’s nuclear development program.

Top image: Iranian rial (photographer Veronica Garbutt / REX / Shutterstock)

Focus article by Bantillo Pearl

Additional reporting by Angie Li, Veena Pathare, Felita Widjaja, Kite Chong, Ai Teng Lim and Izham Ahmad

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