Petrochemicals at IME Hit a Snag

Petrochemicals at IME Hit a Snag   Petrochemicals at IME Hit a Snag

A new directive by the ministry of industry, mine, and trade calls for petrochemical products to be offered in the Iran Mercantile Exchange (IME) in a bid to bring transparency and balance the market; however, a subsection therein is apparently having a negative impact on the process.

Companies seeking transparency would support offering their products at actual prices at the IME, Abdolkarim Ebrahimi, member of the parliament's budget and planning committee was quoted by IRNA as saying on Sunday.

"Supplying products at the mercantile exchange will elucidate all aspects of a company's operations, including production, sales, and revenues, and this is a significant advantage of the bourse," the official said, noting that part of the new regulation counters its raison d'être, that is providing transparency.

According to the regulation, all petrochemical products should be offered in the bourse at their actual prices. The regulation was implemented, engendering positive results for the petrochemical industry so far. However, a subsection included in the directive stipulates for withdrawal of petrochemical companies from the bourse, allowing them to continue trading outside the IME. This indicates that some big petrochemical companies are resisting the transparent supply of their products.

The subsection provides for supply of petrochemicals in the free market if they were not sold in the bourse after having been offered twice. The subsection, thus, provides means of evasion and spurns transparency. Giving petrochemical complexes the means to trade in the free market, it contributes to fraudulent arrangements. Given the lack of comprehensive scrutiny in free market, the first and foremost consequence of supplying petrochemical products out of the bourse could be tax evasion, Ebrahimi noted.

"The petrochemical market would have been free and competitive, the same as steel market, were the authorities determined that products must be transparently offered at the bourse, and had the decisions not been made to the benefit of a selected few," he added. "This would have been in the national interest."

  New Petrochem Contracts

Iran plans to launch new petrochemical contracts on the Iranian Oil Bourse on Kish Island and is trying to promote existing and planned contracts, market sources told Platts.

A forum to explain the contracts and the procedures for carrying out transactions on the exchange has been scheduled for May 28 at the Shangri La Hotel in Dubai.

"We plan to launch aromatics and polymers contracts. Plans for more contracts will be disclosed at the forum in late May," a source familiar with the matter said.  Iran already has several petrochemical contracts ranging from polymers like HDPE and LDPE, and aromatics like orthoxylene and paraxylene offered on the IME.

  Financial Hurdle

Prominent traders based in Dubai said that the exchange authorities will first need to define clearly the means of financial transaction on the bourse to be able to attract interest. "We have hardly go access to the existing petrochemical contracts at the IME in Tehran. This is because the banks refuse to finance such deals," said one of the largest traders of Iranian petrochemical products, who is based in Dubai.

"So unless there are new means for ensuring a safe financial transaction, we will not be able to trade at the exchange."

"If it's physically backed contracts that the exchange plans to launch then there are several issues to be looked into. Like which vessels will take delivery as sanctions on Iranian shipping industry make financing difficult," another Dubai-based trader said.

"There are solutions to these problems and they will be discussed during the May conference," a source close to the forum's organizing committee said. The forum will be organized under the auspices of the Iran Business Council in Dubai.

Financial sanctions spearheaded by the US were imposed on Iran to curb the country's nuclear program, which the West claims is geared to military use. Iran insists its program is entirely peaceful. Iran and the P5+1 group (five permanent members of the UN Security Council, namely United States, Russia, China, United Kingdom, and France, plus Germany) have been holding marathon talks over the past year to thrash out a mutually acceptable comprehensive deal. They have until the end of a self-imposed deadline of July 1st to reach a final deal.