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Iran Petrochemicals Report Q3 2011
The expansion of the Iranian petrochemicals industry is simply adding to the country’s problem of overcapacity with new plants suffering the effects of both relatively sluggish domestic demand and the restrictions imposed by the international sanctions regime, according to BMI’s latest Iran Petrochemicals Report.
The Iranian government has forecast total petrochemicals production capacity exceeding 95mn tpa by the end of the fifth development plan (2011-2016). This is based on the construction of the Bushehr and Marjan petrochemical complexes. In FY2011/12 alone, national capacity is scheduled to rise 6.5% to 51mn tpa. In February 2011, construction of the Marjan Petrochemical Complex started at the Pars Special Economic Energy Zone in Assalouyeh. The complex will have the capacity to produce 1.65mn tpa of methanol when it comes onstream by 2015 at the cost of IRR2.12trn (US$212 mn).
In February 2011, six petrochemical projects with a total investment of US$2bn and total capacity of 3.14mn tpa came online, bringing national petrochemicals capacity to 47.87mn tpa. These included a 1.65mn tpa methanol unit at the Zagros petrochemical plant costing US$440mn and a 245,000tpa butadiene unit at the Jam petrochemical complex costing US$148mn. Other projects included docks at the Pars Petrochemical port with a loading capacity of 35mn tpa following investment of US$864mn, an industrial wastewater treatment and incineration unit at Mobin Petrochemical plant with an investment of US$76mn, an air separation unit at Mobin Petrochemical plant costing US$152mn and ethyl benzene and styrene monomer units at Pars Petrochemical complex with a styrene capacity of 245,000tpa and investment of US$350mn. There was, however, no indication of the progress on the 240,000tpa PVC unit of the Arvand Petrochemicals Complex, a PE unit at the Amir Kabir Complex, part of phase two of Fajr Complex and the hard PS unit of Tabriz Complex, which were all due onstream by the end of FY2010/11.
Despite strong growth in capacity, the Iranian petrochemicals industry was operating at below 75% of total nominal capacity in FY2010/11. BMI does not foresee an improvement in operating rates under the current climate. As such, we believe that the Iranian petrochemicals industry is effectively loss making and reliant on government subsidies, which makes it vulnerable to anti-dumping duties.
Operating rates can only be raised through market diversification, a process that is severely curtailed by the sanctions regime imposed by the US and the UN. Market growth is particularly limited in the petrochemicals-intensive automotive and electronics segments where investment has been severely curtailed. Even with strong export growth, the moderation in domestic consumption means that polymer plants are operating well below nameplate capacity; Iranian producers had said that plants were not performing at full capacity owing to technical problems.
In terms of domestic consumption, growth was sustained but unspectacular in FY2010/11. According to industry sources in Iran, the country’s polyolefin consumption in FY2010/11 was estimated at 1.7mn tonnes, up by nearly 8% y-o-y. PE would account for 64% of the total, while PP will represent the remainder. Domestic consumption represents around 39% of Iran’s combined PE and PP capacity of 4.4mn tpa. Growth levels are disappointing and should be at least double this level, in line with similarly positioned markets.
This quarter, Iran has maintained its fifth-place rank with 56.5 points, unchanged since the previous quarter. This puts it 1.0 point ahead of Israel and 0.9 points behind Kuwait. With the state sector dominating the petrochemicals industry, Iran’s Market Risks score is low, with high levels of economic and political risk pulling down its score. In order for an improved score and ranking, Iran needs a more positive political risk outlook and a breakthrough in terms of the regulatory regime. This looks unlikely on a short- to medium-term view.