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Iran may divert as much as 20 per cent of its annual polymer exports from Asia to Europe when sanctions on the Middle Eastern country are lifted, as Chinese market weaknesses fan the flames of investment uncertainty.
This is according to an article published by ICIS, the world's largest petrochemical market information, in a report compiled by Muhamad Fadhil, Linda Naylor and Matt Tudball. The report states that when international sanctions imposed on Iran following suspicions surrounding a potentially threatening nuclear development programme are lifted, decision-makers may choose to abandon the perceived risks China poses.
As such, Germany, Italy and Spain are in the crosshairs for Iran and are considered the GCC's toughest rivals in the polymers industry.
One unnamed Saudi Arabian polymer supplier was quoted by ICIS as saying: "We expect stiff competition from Iran. Once the sanctions are lifted, we know the Iranians will come to Europe aggressively ... Our intelligence tells us Iran is already ramping up production ahead of the lifting of sanctions. GCC suppliers will be affected by a resurgent Iran."
Exactly when sanctions will be lifted remains unknown, after the country reached a deal with key world leaders in July in a bid to curb Tehran's nuclear programme. Iran is expected to re-join the Society for Worldwide Interbank Financial Telecommunication (SWIFT) services network in late 2015 or early 2016, resuming crude oil and petrochemical trade with neighbouring Turkey, providing a portal into Europe. When this happens, it is likely Iran will push greater volume of polymer into Europe. Another anonymous polyethylene supplier based in Riyadh believes this is owing to "the promise of higher netbacks and a weakening China".
China is considered something of a bearish investment market at present. As it is a major polymer importer, many suppliers will be looking elsewhere to prevent their balance sheets from faltering along with Chinese GDP, which looks set to miss the government's seven per cent growth target.
ICIS reports that the UAE, Qatar, Kuwait and Saudi Arabia exported some 14 million tonnes of polyethylene and 2.3 million tonnes of polypropylene into the EU in 2014, according to Eurostat figures - and now Iran looks set to snatch a good share of this export pie.
A Dubai-based trader was quoted by ICIS as saying: "Iran is a major PE and PP exporter so any small shift of volumes to Europe will likely be felt."
After years under International sanctions, Iran will be eager to reclaim its share of the European market, but the country will not abandon its Chinese business, which has provided a crucial investment lifeline for the industry.
"We will remain loyal to our Chinese customers who supported us during the time of the sanctions. We can never abandon China," a source associated with an Iranian polymer supplier was quoted as saying.