For Free Headlines Submit Your Email
Saturday, May 25, 2013
Iran is expected to continue exporting methanol into Asia in spite of the tightened West-led international sanctions to the Middle Eastern country over a suspected nuclear weapons program, because the region needs the Iranian material, industry sources said on 30 August.While recent statistics from China showed that its imports of Iranian methanol has slowed to a trickle, official data may not be capturing the true volume of shipments as market players have resorted to ingenious means, including hiding the origin of the cargoes to get around the sanctions, industry sources said. Official data showed that China’s methanol imports from Iran dwindled to 46,700 tons, down by 72% from January. China Methanol Imports January-July 2012
Total imports (tons)
From Iran (tons)
Source: China Customs (US$1 = €0.80)In May, insuring ships that will call on Iranian ports were prohibited in the EU, stifling trades between Iran and its major customers, which include China, in the months that followed. The US Congress, on the other hand, issued fresh sanctions in late July against Iran’s petrochemical, shipping and financial industries. But most methanol market players expect product shipments from Iran to continue flowing into Asia in spite of the tightened sanctions, with some drawn to current attractive freight rates from Iran, notwithstanding the risks.Freight rates from Iran to China nearly doubled to US$100-US$110/ton (€80-€88/ton) in June and July from US$55-US$60/ton in May, market sources said, whereas shipping cost from the Persian Gulf to northeast Asia was just at around US$50-US$55/ton."I have heard freight rates of up to US$105/ton, which is equivalent to olefins transport and I am willing to pay this, if the Iran suppliers factor this freight cost into their FOB [free on board] selling ideas," a China trader said. Freight rates from Iran to India have also gone up to more than US$40/ton in June from US$35/ton in May.Since the sanctions led to difficulty in processing payments and in shipping out Iranian methanol, producers in Iran might be keen to sell on a free-on-board (FOB) basis to move volumes, shouldering the high freight costs to entice buyers. "Sometimes it is better this way because we don’t have enough vessels," a supplier said. In the case of China, continuing imports of Iranian methanol is a necessity as the northeastern Asian country is unlikely to find an alternative source that can supply the huge volume it requires, market sources said.Methanol is a construction chemical, with huge application in formaldehyde, which is commonly used in permanent adhesives for plywood or to make paints and explosives. In China, methanol is also used as fuel for vehicles.Based on official data over the past seven months, China’s monthly methanol imports averaged 390,000 tons. But actual volumes declined 35% from January to roughly 260,000 tons in July, with the share of Iranian material to total declining to 18% from 41% over the same period. (Please refer to table)Market players are currently taking great care to ensure the origin of methanol is not traced back to Iran. Some of the means cited by industry sources include shipping Iranian cargoes in vessels flying a different flag, or mixing the product with those of other countries.Iranian cargoes are heard to be being loaded into Indian and Chinese ships for delivery, they said. Product mixing may explain the spot methanol offers coming from India that are baffling to market players, since domestic supply is currently short to cover its own requirement, they said.Notwithstanding the international sanctions, India and China – Asia’s biggest emerging market economies – continue to provide insurance for ships calling on Iranian ports, underscoring the importance of the Middle Eastern country as a supplier of raw material for the region’s industrial production. The region’s highly industrialized countries – Japan and South Korea – on the other hand, have ceased trading methanol from Iran, in deference to the latest round of sanctions, industry sources said.A Northeast Asian market participant had recently activated his exit clause in a contract – drafted early in the year – with Iranian supplier, as the international sanctions tightened.Meanwhile, buyers may stand to benefit from the payment processing difficulties posed by Iran sanctions, as these afford them a leeway to negotiate for lower prices. Iranian products are often offered in tenders, and bought by traders with a view to re-sell the material in the spot market. Traders are placing a high priority on assurance that the cargoes from Iran will be shipped before trying to re-sell, hence are not making offers until the cargoes are loaded onto ships for delivery.Some methanol buyers have resorted to using alternative currencies, such as the euro, the Japanese yen and the UAE dirham, for letters of credits to pay for Iranian cargoes, trumping the US dollar. Most payments are being coursed through Dubai via telegraphic transfer (TT), while some buyers opt to pay in cash to avoid complicated transactions although only a few are able to settle trades in this manner. In India, the rupee may possibly be used as an alternative currency of trade for methanol between the country and Iran, as it is done with crude oil transactions. Iran produced 17.6 million tons of petrochemicals in the five months to August, and exported 7.3 million tons valued at US$5.3 billion over the period, according to local media quoting the National Iranian Petrochemical Organization. Apart from methanol, shipments of base oils, ethylene and fertilizers are being affected by the sanctions but have not stopped altogether. The UAE continues to receive Group I base oils cargoes from Iran, while India’s imports have stopped, market sources said.Meanwhile, Chinese traders are working on bringing Iranian ethylene into China with the settlement to be done via a barter system because of the tightening of sanctions. The last ethylene shipment recorded from Iran to China was in end-May. On the fertilizer front, only a Turkey-based trader can ship ammonia cargoes out of Iran, while other traders could not get insurance for their vessels, according to market players. An 18,600-ton spot shipment of Iran-produced ammonia was loaded on a ship by the trader for delivery to India. In the polyethylene (PE) and polypropylene (PP) resins markets, trades of Iranian material also came to a standstill. – ICIS
© 2013 BEDigest. All Rights Reserved.