Economy, Business And Markets

Petrochem Forex Revenues to Help Curb Market Volatility

Iran’s petrochemical forex revenues are between $10-12 billion annually. Iran’s petrochemical forex revenues are between $10-12 billion annually.

Governor of the Central Bank of Iran has underlined the role of petrochemical companies in balancing the foreign exchange market, urging them to maximize discipline and efforts to better stabilize a volatile market.

“Unlike what some say about the performance of the petrochemical units and their role in market swings, I believe their performance has actually gone a long way in helping its stability,” Valiollah Seif also said in his meeting on Monday with petrochemical industry executives as reported by the official news website of CBI.

“The experience we have had of the performance of petrochemical units in the midst of currency fluctuations during the past few years has been one of positive collaboration.”

The sluggish activity of petrochemical firms, which are a significant source of hard currency revenue for the country, had been partially blamed for the  recent forex swings that sent the US dollar to a four-year high in Tehran last week. 

But under the current circumstances, Seif added, “we expect more discipline in the nature of their actions” because export revenues has turned into a highly influencing factor in the market. 

“In the past, the central bank injected most of the country’s foreign exchange into the market,” he said. “That is while this ratio has decreased and a huge part of the revenues is currently related to non-oil exports and in this sector, petrochemical companies boast a significant share.”

Due to a variety of factors, Iran’s foreign exchange market has recently been grappling with instability with the US dollar parity rate reaching dangerously close to the 40,000-rial threshold. 

According to the secretary-general of the Association of Petrochemical Industry Corporations, petrochemical companies have reached an agreement with CBI to inject currency into the market on an orderly weekly basis.

“On the other hand, should the CBI’s supply dwindle on some days, petrochemical companies will prevent large-scale fluctuations in the market by increasing their supply,” Ahmad Mahdavi also said in an interview with Mehr News Agency.

  Steady Supply 

Mahdavi said currently 20% of the forex revenues of Iranian petrochemical companies are spent to purchase “catalysts, additives, spare parts and equipment from other countries” and the remaining 80% are directly injected into the market.

“In the past 10 weeks, petrochemical companies have injected about 78% of their forex income into the market and it has been agreed that this process will be gradual and permanent,” he said.

The CBI chief noted that although the petrochemical industry has stuck with its organized weekly plan, sometimes the nature of their performance is out of sync with the submitted plan and that causes lack of discipline in the forex market.

Therefore, the CBI comes into play to fill in for what its governor calls a “void” and by assessing the amount of currency supply to the market by exporters, “it strictly seeks to provide for the lack of currency resulting from the absence of petrochemical units”.

Commending their contribution to the stability of foreign exchange market, Seif asked them to commit to discipline more than ever to protect “the current achievements”. He, however, did not elaborate on these achievements. 

According to Mahdavi, Iranian petrochemical companies currently distribute the revenues earned from exports in dollar, euro and dirham.

“All their currency is distributed solely through exchange centers that are approved by the central bank and are sold to people and other applicants in the form of payment orders,” he said.

According to the official, Iran’s petrochemical forex revenues are between $10-12 billion that could potentially rise to $20-25 billion in a more than twofold increase “with the implementation of the sixth five-year development plan (2016-21)”.

The plan–under review by the parliament–outlines the government’s plans and strategies for the next five years.

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