Iran Petrochemicals Report Q4 2009

Iran Petrochemicals Report Q4 2009

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.

Executive Summary .5
SWOT Analysis7
Iran Petrochemicals Industry SWOT . 7
Iran Political SWOT . 8
Iran Economic SWOT.. 8
Iran Business Environment SWOT.. 9
Global Market Overview10
Global Ethylene Capacities 10
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) . 10
Polypropylene 13
Global Oil Products Market Review 16
Table Global Oil Prices, 2003-2013 (US$ per barrel). 20
Gulf Regional Overview21
Table: Announced Ethylene Cracker Projects In The Gulf Region .. 23
Iran Market Overview 24
Table: Iran’s Olefins Capacities, January 2009 . 25
Table: Iran’s Polymer Capacities, January 2009 .. 26
Impact Of Pricing Mechanism 27
Table: Iran’s Petrochemical Sector – Cracker Capacity Data And Forecasts, 2006-2013 (‘000tpa) 27
Petrochemicals Business Environment28
Table: Middle East And Africa Petrochemicals Business Environment Ratings . 28
Limits Of Potential Returns. 29
Risks To Realisation Of Returns 29
Industry Trends And Developments ..31
Privatisation . 32
Sanctions And The Petrochemicals Sector 33
West Ethylene Pipeline . 34
NPC News.. 35
Pars Petrochemical. 38
Table: JV NPC Projects Planned, In Progress Or Completed In Petrochemical Special Economic Zone And Pars SEZ.. 40
Iran-Turkey relations. 41
Iran-Indonesia relations .. 42
Industry Developments – Related Industries. 42
Industry Forecast Scenario .44
Table: Iran’s Petrochemicals Sector Forecasts, 2007-2013 .. 46
Macroeconomic Outlook.. 47
Table: Iran – Economic Activity, 2006-2013 49
Company Profiles50
National Petrochemical Company (NPC). 50
Karoon Petrochemical Company.. 52
Country Snapshot: Iran Demographic Data ..53
Section 1: Population. 53
Table: Demographic Indicators, 2005-2030. 53
Table: Rural/Urban Breakdown, 2005-2030 54
Section 2: Education And Healthcare. 54
Table: Education, 2002-2005 . 54
Table: Vital Statistics, 2005-2030. 54
Section 3: Labour Market And Spending Power . 55
Table: Employment Indicators, 1996-2005 55
Table: Consumer Expenditure, 2000-2012 (US$) .. 56
Table: Average Annual Manufacturing Wages, 2000-2012 56
BMI Methodology 57
How We Generate Our Industry Forecasts 57
Chemicals And Petrochemicals Industry .. 57
Cross Checks 58
Business Environment Ratings 59
Table: Petrochemicals Business Environment Indicators And Rationale 60
Weighting 60
Table: Weighting Of Indicators . 61