Boston, MA -- (ReleaseWire) -- 02/17/2014 -- The Iranian petrochemicals industry is set to receive a major boost in exports, putting up a major challenge to its Arabian Gulf rivals. However, BMI's latest Iran Petrochemicals report warns that the country will continue to struggle with feedstock disruptions, a difficult investment environment and continued uncertainty, which could see production significantly undershooting full operational capacity over the medium term.
Iran and the so-called P5+1 countries - China, France, Russia, the UK, the US and Germany - reached an understanding on the implementation of a deal reached in November 2013 on Iran's nuclear programme. The accord started a six-month timetable to reach a final agreement on the nuclear programme, a period which could be extended a further six months by mutual consent. Sanctions on Iran's petrochemical exports and on imports of goods and services for its auto sector will also be suspended. Core energy and banking sanctions will remain in place. However, the US will put on hold efforts to further reduce Iran's exports of oil to the six nations still purchasing its crude.
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Exports are crucial to the Iranian petrochemicals industry, as the domestic market, which is currently in a slump, is unable to absorb the rapid increase in production capacity. Iran exported petrochemicals worth US $8.12bn in the period March-November 2013 with China, Iraq, the UAE and India as the prime destinations, according to the Iran Customs Administration. The country exported methanol worth US $877mn and urea worth of US$866mn, but no further details were revealed on aromatics and polymers exports.
- The domestic economy will play an increasingly significant role in the Iranian petrochemicals industry growth scenario. We project Iran's economy to expand by 2.8% and 3.4% in real terms in 2014 and 2015, respectively, from our estimate of a 3.5% contraction in 2013. Growth should stimulate domestic petrochemicals consuming industries with the automotive industry, although a return to pre-recession levels of output is not expected over the medium term, and is unlikely to rise above 50% production capacity, thereby restraining potential in synthetic rubber and engineering plastics. We maintain a shortterm bearish outlook for the Iranian construction sector, which is the key driver of construction-related petrochemicals such as polyvinyl chloride (PVC) and certain applications of polyethylene (PE) and polypropylene (PP).
- Even with sanctions reduced, the industry faces significant structural challenges. The industry continues to ramp up capacities well ahead of demand growth, while at the same time some complexes are suffering feedstock shortages.
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