Focus: Petrochemicals

Making It Possible

Making It Possible

May. 12, 2013

In 2012, Iran's petrochemicals industry met Registration, Evaluation, Authorization, and Restriction of Chemical substances (REACH) standards set by the European Commission, demonstrating the country's ability to export all of its products to the EU. Despite tighter international trading conditions in effect since July 2012, Iran is determined to continue supplying its major trade partners such as China and India, as well as countries in the Middle East, Asia, and Europe with prime exports of ethylene, ammonia, methane, urea, polyethylene, and polyolefin. A number of the country's largest producers have been attracting investor interest by listing on the Tehran Stock Exchange and forecasting huge growth for the coming year.

In the framework of Vision 2025, Iran aims to occupy 34% of the market share in the Middle East and account for 6.2% of the sector globally. Investment in the industry has a number of competitive advantages: huge gas resources, a vast local market, diversified supply chains, a skilled and cost-effective workforce, infrastructural developments, the appropriate legislation, investment protection, and a rise in production activity.

National Petrochemical Company (NPC) officials reported that production capacity has risen by 28 million tons during the 9th and 10th administrations of President Ahmadinejad. During the most recent period, 31 projects have become operational, and the first phase of the West Ethylene Pipeline and Kavian petrochemical plant are expected to come online in the near future. The government allocated $500 million of foreign exchange toward petrochemical projects in fall 2012, part of a $14 billion investment to be dispersed over the course of five years.

However, local companies have also attracted interest from private and foreign investors through activity on the Iranian stock market in 2012. The petrochemicals sector was the most dynamic in March and April 2012, seeing a variety of companies such as Maroon Petrochemicals and Parsian Holding hold IPOs. Maroon Petrochemicals listed 3% of the company on Farabourse in February 2012, with a market capitalization of $5.7 billion. Parsian Holding, the largest listed petrochemicals holding company in the country, offered 10% of its shares and saw stock price rises of 17% in March 2012. The stocks of two other enterprises—Khark Petrochemicals (the third largest methanol provider in the Middle East) and Pardis Petrochemicals (the largest producer of urea)—grew by 13.6% and 3.6% in January 2012. Financial analysts predict that these companies will register profits of approximately 50%-100% during the fiscal year.

According to figures released by the NPC, Iran's petrochemical exports increased 10% and 29% in terms of weight and value, respectively, since the beginning of March 2012, compared to the same period in 2011. The country's petrochemical production has also increased 10%. In 2011, Iran exported 18.2 million tons of petrochemical and polymer products worth about $14.2 billion to more than 60 countries. China is Iran's largest petrochemicals customer, buying 22% of its total exports, which were worth $14 billion in 2011. One of Iran's most faithful oil traders, Sinochem, typically imports between 20,000 and 30,000 tons of Iranian petrochemicals per month. Furthermore, South American countries, especially Brazil, have recently shown interest in purchasing urea from Iran.

In June 2012, Abdol Hossein Bayat, President of the NPC, reported that the value of petrochemical exports had grown six fold since the beginning of the fourth Five-Year Development Plan (FYDP) in 2005. Petrochemical and polymer production increased to 34.4 million tons in 2010, up from 15.8 million tons in 2005. In March 2012, the figure had reached 43 million tons. Bayat also announced plans to increase petrochemical output by 5 million tons to 50 million tons by March 2013. “We are currently implementing the fifth FYDP at the national level and within this framework, we are financing 73 new petrochemical projects," he told TBY. “When these are implemented, we will have an extra 66 million tons of installed capacity."

As a subsidiary of the Ministry of Petroleum, the NPC is owned by the government and functions with the main responsibility of developing and operating the country's petrochemicals sector. In the past 50 years, NPC has aimed to become the second largest producer and exporter of petrochemicals in the Middle East, expanding both the range and volume of its products and carrying out R&D to establish a more self-reliant industry.

These goals were set in response to Iran's struggle with a series of economic setbacks, the most recent of which entered into force in July 2012. In effect, the economic restrictions on oil and related products have been a blessing in disguise, leading both traders and producers to find creative solutions for the country. In terms of insurance, a two-tier petrochemicals market has been created that offers large premiums to ship owners who are able to acquire replacement insurance to transport Iranian products. Tanker companies in the petrochemicals trade between Iran and China have quoted as much as $100 per ton for the use of a 10,000-ton ship, which is double the normal rate. Increases in freight rates were also reported in India, Iran's second largest oil and petrochemicals buyer. Typically, chemical tankers require less than $5 million in liability insurance to operate, according to Reuters. However, Beijing has considered offering sovereign guarantees for Iranian tankers in order to maintain trade levels. This show of support confirms the sustained demand for quality Iranian petrochemical products.

In terms of necessary products that were previously imported from abroad, such as chemical catalysts, local producers have acted quickly to manufacture the needed ingredients. By exchanging know-how with companies domestically and internationally, petrochemicals companies have formed a network that allows for the development of products that can no longer be imported from previous sources. In building this knowledge base, companies such as Jam Polypropylene (JPPC) have begun to move toward exporting these products as soon as local demand is adequately met. In an interview with TBY, Mohammad Hossein Maghazei, Managing Director of JPPC, explained, “In terms of development, we are going to increase our product diversity and enter new markets. We are also planning to maintain our current market share by increasing our product quality and ensuring that our customers are satisfied."

In many ways, Iran has defied the odds to become a petrochemicals contender. As early as 1964, Iran began exporting petrochemicals such as fertilizer from Shiraz. The government decided to invest in petrochemical production as part of a larger industrialization scheme, and by 1979 the country was exporting 1.6 million tons annually. Since the Revolution, the government has maintained a solid focus on developing the industry as a central point of all five of the FYDPs that have been enacted. This constituted investments of $5 billion, $28 billion, and $14 billion since the early 1990s, with an installed capacity of 51 million tons by 2010. Iran now produces 25 petrochemical products, with plans to increase that figure to 83 by 2015.

As the country seeks to depend less on crude oil exports and shift to a more diversified economic base, experts agree that the petrochemicals industry could provide an excellent source of alternative income for the country. In addition, Iran will likely benefit from employment creation and greater self-sufficiency as it develops the petrochemicals industry further.