Lifting Iran sanctions unlikely to impact Indian methanol market immediately

Lifting Iran sanctions unlikely to impact Indian methanol market immediately

Lifting of sanctions on Iranian methanol is unlikely to have any immediate impact on supply to India, but freight rates could rise by about 10%, ship brokers and market participants said this week. Methanol is usually carried on specialized tankers of 13,000-50,000 dwt capacity.

At present, the freight rate from Iran to India was around $25-$35/mt compared with $35-$45/mt for shipments to China as the voyage is shorter, shipping brokers said.

Early this month, Iran reached a deal with six world powers over its nuclear program.

However, there are several checks on the deal and Iran must show by October 15 that it has met its commitments.

If International Atomic Energy Agency inspectors verify Iran’s compliance, the country will be allowed to increase trade of commodities including petrochemicals.

The ban on shipping insurance that has restricted the transport of Iranian oil, petrochemicals and natural gas products will also be lifted.

The re-entry of European vessels on the Iran-India trade route could lead to a rise in freight rates on rising competition for vessels as some buyers would prefer to charter European vessels, which usually command a premium over Chinese and other Asian vessels that do not conform to the same quality specifications as Western carriers, a source said. But those vessels might be the preference for European buyers too.

Methanol prices in India have been the lowest globally due to an influx from Iran even as South Korea, Japan and Southeast Asia stopped buying Iranian material altogether in the wake of European Union and US sanctions.

Following the easing of sanctions, however, Iran might try to recapture market share in South Korea, Japan, Southeast Asia and Europe, leading to less methanol heading to China and India. A trader said he was not too concerned as he expected Iran to merely increase its production to meet an increase in demand for methanol.

Iran has already announced that it plans to boost its methanol production capacity by around 7.65 million mt by 2017.

Meanwhile, India has adequate inventories and this, coupled with sluggish downstream demand for products such as formaldehyde, would mitigate any immediate impact even if Iran diversifies its export markets, a producer based in India said.

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