Abstract
BMI’s latest Iran Petrochemicals Report warns of a severe slowdown in
investment in the sector as the
country grapples with low oil prices,
global recession and a sharp drop in foreign investor confidence in
the
face of sanctions and the re-election of hard-line President Mahmoud
Ahmadinejad.
The Iranian government claims that petrochemicals output rose
18% y-o-y in the 2008/09 Iranian year
(ending 20 March) to 27.1mn tonnes,
but did not give a breakdown by product. According to government
figures,
the value of petrochemical exports totalled US$8.2bn in the 2008/09 Iranian
year, compared to
US$3.2bn four years earlier. This was US$300mn above the
level BMI had estimated and around 35%
above the level achieved in the
previous year. This was still US$800mn below the target set by
Iran’s
petrochemical exporter, the IPCC, demonstrating that the
global recession had a deleterious impact on the
sector in the second half
of the 2008/09 Iranian year. The situation may have been worse if it had not
been
for the final completion of the Jam Petrochemicals Complex in
December 2008, three years behind
schedule.
Low oil prices are likely
to impact badly on the Iranian economy, putting pressure on demand and
therefore domestic consumption of petrochemicals. Falling growth in real
private consumption and real
gross fixed capital formation in 2009/10 will
lead to deterioration in output growth of the consumer good,
automotive
and construction industries, which are major consumers of petrochemicals
products. Lower
oil prices also mean lower oil revenue, reductions in
foreign exchange reserves and worsening liquidity
problems in the
financial sector. Domestic liquidity will be affected by fewer petrodollars
entering the
banking system, leading to a slowdown in lending to
businesses.
Meanwhile, the hopes of the petrochemicals industry to attract
foreign investment will be hit by global
recession and sanctions. The
prospect of Iran being able to attract substantial FDI inflows over the
coming years remains poor, although they have never been great. Like other
areas of the economy, Iran’s
petrochemicals industry will continue
to suffer from chronic underinvestment. Specifically to Iran, the
UN, US
and EU sanctions regimes relating to the former’s nuclear programme, and
which target key
sectors of its economy such as oil, gas and
petrochemicals, will keep potential investors away,
particularly Western
investors. However, the door remains open for investors from China and
Russia,
although these may not have sufficient capital to make up for the
decline in Western investment and they
are also keen to develop their own
domestic capacities. Petrochemicals companies will find it harder to
obtain finance and the import material and machinery for the construction of
petrochemicals projects.
The government anticipates that 10 petrochemicals
projects worth US$12bn will come onstream in the
2009/10 Iranian year,
helping to raise output to 39mn tonnes, a 44% y-o-y increase. BMI is
highly
sceptical that the industry will meet its project deadlines or that
extra capacity will be fully utilised, given
the current economic
environment. Iran has a poor reputation for meeting project deadlines and this
will
be compounded by lack of expertise, a more restrictive financial
situation and ongoing international
sanctions. There are therefore doubts
over the government’s hopes to establish 47 petrochemical
operations
by the end of the Fifth Five-Year Economic Development Plan in 2015, adding a
total of 43mn
tpa of capacity. According to officials, once the projects
become operational, Iran will represent at least
5.3% of global
petrochemical output and 36% of Middle Eastern production. The Oil Ministry
has set
targets for annual production of 11.5mn tpa of ethylene, 11.5mn
tpa of polymer and 3.4mn tpa of urea,
with a target of becoming the
world’s leading producer of methanol with 7.5mn tpa of methanol
capacity
representing 18% of global capacity.
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