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Analysis: Iran, a major petrochemicals exporter, turns importer

London — Years of underinvestment in refineries and naphtha crackers means Iran, a historical exporter of plastics and methanol, will likely become an importer of a vast array of petrochemical products in the foreseeable future. Trade sources say the country will need to embark on a major refinery and downstream petrochemicals expansion drive to reverse this trend.

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The country will also need to import other specialty grade chemicals to meet the growing requirements of multiple industries including pharmaceuticals and cosmetics.

These materials -- shortage of which was noticed within a month of the lifting of international sanctions on Iran on January 16 -- include polypropylene-copolymer, specific grades of polyethylene terephthalate, ethylene dichloride and vinyl acetate monomer. The list is expected to grow as the country's economy expands at a rapid pace and the gaps between demand and production widen.

"The first indication of Iran requiring to import polymers emerged when the country took the first steps to revamp its cars manufacturing capacity," said Ashish Mukherjee, the business head of the polymers division at Amiti Overseas, a Dubai based trading company.



"Currently, there is strong demand for polypropylene-copolymer in Iran. Then there are other products that are short including EDC and VAM," Mukherjee added.

"We have based a representative in Tehran to consistently look for export opportunities into the country. Our focus is more about exporting into Iran than exporting out of it," another Dubai based trader with strong interests in Iranian trade said. "Besides automobiles, we are looking at a range of other products that go into the fast moving consumer goods stream."

The demand for cars in Iran may rise as much as 25% in 2016 to 1.8 million units, according to a recent report from global consultancy firm Roland Berger.

"Iran has a large automotive industry with six major car manufacturing groups, and is expected to grow, driven by economic reform, scrappage of old cars, and demand for foreign cars," the consultancy said.

While products like polypropylene copolymer are in demand from Iran's car industry, products like amines, glycol ethers, isocyanates, polyether polyols, polyolefin elastomers and propylene glycols are in demand from the FMCG industry. According to Platts petrochemicals analytics, the country does not immediately plan to add capacity for products like toluene and benzene that go into these streams.

Formal figures on projected demand for various petrochemicals in Iran are not available. However, data from Platts analytics shows flat production of a multiple petrochemicals for years to come. While the production of toluene is expected to remain fixed at less than 500,000 mt/year till 2021, a range of other petrochemicals, from butadiene to propylene that go into applications as wide as tires to solvents, shows a similar sluggishness.

Iran is adding some propylene capacity but that may not match the soaring downstream propylene requirements.

"The propylene market will be looking closely at the building of the Mehr PeroKimia PDH plant for an additional 400,000 mt/year of propylene supply," said Michael McCafferty, managing analyst at Platts Petrochemicals Analytics.

ECONOMIC, PETCHEM GROWTH MISMATCH

Fresh from the lifting of sanctions, imposed over the country's nuclear program, Iran is still coming to terms with the requirements of a young, growing population and an economy set to gallop.

"At 1.6 million square kilometers, Iran is the 17th largest country in the world and its population of 78 million is similar in size to Germany. Remarkably, 41% of Iranians are below 25 years of age, offering a firm foundation for economic growth. Despite the sanctions and their consequences, Iran's GDP still stands at a sizeable $415 billion," Roland Berger said in the report.

According to the IMF, Iran's economy grew 4.3% in 2014 after succumbing to recession in 2012 and 2013. Speaking at a press conference in Tehran last Saturday, Iran's Minister of Economic Affairs and Finance Ali Tayyebina said the country has set a 5% annual growth target for 2016.

Mohammad Agha Nahavandian, chief of staff of the Presidency of the Islamic Republic of Iran, told the World Economic Forum annual meeting in Davos in January that the country's economy has the potential to average 8% growth over the next five years.

As international financing dried up during the years of sanctions, Iran embarked on projects that would raise production of the petrochemicals it could comfortably produce based on its vast availability of methane and ethane gases.

Banking on methane, 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. Based on its massive ethane supplies, the country plans to raise its polyethylene supplies by 2-3 million mt/year over the next 10 years. Its current PE capacity is placed at 3.7 million mt/year.

Iran is yet to announce a plan to construct a new refinery sometime soon and the country has embarked on a nationwide project to upgrade its existing refinery infrastructure.

It has also announced plans to participate in refinery projects abroad that would process Iran-origin crude. Abbas Kazemi, the managing director of the National Iranian Oil Refining and Distribution Company, or NIORDC, said at the end of January that the company's refineries at Isfahan Bandar Abbas and Lavan are all being modernized.

However the focus of these refinery projects has been enhancing gasoline capacity that meets Euro-4 specifications.

"The Iranian market will see a shortage of by-products from crackers. The country relies heavily on gas-fed crackers for ethylene production and these units yield little in the form of propylene and other by-products," Mccafferty said.

On the other hand, following the recent lifting of sanctions, Iran has been approached by countries as far away as Spain, Brazil and South Africa to enter into joint venture agreements to construct refineries within their borders and then supply the facilities with crude feedstock.

ARCH-RIVAL SAUDI ARABIA SCORES

In contrast to Iran, arch-rival Saudi Arabia, which has been financially much better placed over the past 10 years, has moved into an expansion drive based on refinery and naphtha feedstocks.

Through 2016 and early 2017, Sadara, a joint venture between Saudi Aramco and Dow Chemicals, plans to start several specialty units at its Jubail-based complex.

Sadara's Jubail petrochemical complex is the first to crack naphtha in the Gulf Cooperation Council region and is designed to produce a range of specialty petrochemicals.

This will include polyurethanes, propylene glycol, butyl glycol ethers, amines and polyolefin elastomers. Total petrochemicals capacity of various naphtha-based chemicals at Sadara's $20 billion Jubail complex is placed at 3 million mt/year.

After years of basing production on gas feedstock, and following coercion by the government, other Saudi companies like Sabic and Petro Rabigh have also moved on drive to produce specialty chemicals.

--Shashank Shekhar, shashank.shekhar@platts.com
--Edited by James Leech, james.leech@platts.com