Iran's petrochemical product exports to hit record low amid US sanctions and Covid-19

The expected fall this year will contrast with 2019 when 73% of Iranian exports were directed to China and a further 21% to India

An Iranian man works at an oil facility on Kharg Island, on the shore of the Gulf. Exports of petrochemical products from Iran are expected to drop sharply in 2020. AFP

Exports of petrochemical products from Iran are expected to drop sharply in 2020 amid the global outbreak of the novel coronavirus and imposition of sanctions by the US government on Chinese imports from the Islamic republic.

In March, the US imposed sanctions on seven entities including Chinese trading and shipping companies for knowingly engaging in the purchase, acquisition, sale, transport, and marketing of petrochemical products from Iran.

“As a result exports of chemicals from Iran will drop sharply in 2020 because China and India are the largest buyers of Iranian products. In 2019, about 73 per cent of Iranian exports were directed to China and a further 21 per cent to India,” said Hu Qing, lead analyst from Drewry Maritime Research in a note.

Exports from Iran shrunk 28 per cent in 2019 compared to the previous year following the reinstatement of oil-related sanctions on the country by the Donald Trump administration in November 2018, according to the consultancy.

“Although China’s economic growth is estimated to drop in 2020, we believe in the long-term, oil prices will rebound and China’s new MTO (Methanol to Olefins) project capacities will be released, driving up demand for imported methanol,” he said, adding China will look to import additional methanol from other Middle Eastern countries if sanctions continue to remain on Iran.

Methanol and MEG (mono ethylene glycol) are the major products exported from Iran and accounted for 77 per cent and 11 per cent respectively of the total volume exported in 2019.

The other factor expected to affect the export of chemicals from Iran is the higher freight costs due to difficulties in obtaining shipping insurance.

“Besides, Iran is also unable to obtain shipping insurance [since] August 7, 2018 as the US-based shipping reinsurers no longer have active US waivers and Iranian shippers have been compelled to self-insure,” the consultancy said.

The outbreak of the coronavirus is also expected to hit Iranian exports as countries impose restrictions on the movement of goods to contain the spread of the pandemic.

Global trade has been heavily affected by the restrictions put in place to stop the spread of Covid-19. Earlier this month, the World Trade Organisation predicted that global trade would fall between 13 per cent and 32 per cent in 2020, with all regions facing double-digit declines.

“Iranian exports will hit record lows with persisting sanctions on Iran and as more Chinese companies face difficulty in trading with Iran," the consultancy said. "Until sanctions are lifted exports of chemicals from Iran will, therefore, remain curtailed.”

Meanwhile, China’s demand for chemicals picked up in April but remains weak. India’s demand, however, will be dampened as the government mulls retroactively levying a 15 per cent Covid-19 tax on imports of some chemicals from May 1, 2020.