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Iran's petrochemicals: a sector under pressure

Iran's petrochemicals: a sector under pressure
(Friday, May 19, 2023) 01:08

TEHRAN (NIPNA) -- Petrochemicals are a bright spot in Iran's troubled economy. They account for a sizeable chunk of national income, jobs, exports and value-added. The National Petrochemical Company (NPC) says Iran has 67 complexes that can produce 89m tonnes a year, and hopes to raise that to 100m tonnes by next March. It also plans to invest $37bn to boost output to 133m tonnes by 2025.

But the industry faces formidable hurdles. Among them are:

•  Sanctions. America's squeeze since 2018 has curbed access to finance, technology, equipment, feedstock and markets. It has raised costs and risks for those who do business with Iran, and deterred foreign investors and partners. It has also hit downstream industries that need petrochemicals as inputs.

•  Feedstock. Petrochemicals rely mainly on natural gas, which makes up 70% of their consumption. But domestic supply falls short of demand from petrochemicals and other sectors, such as power generation, households and exports. Moreover, gas is subsidised and priced below its opportunity cost or market value. This distorts resource allocation and discourages feedstock diversification.

•  Technology. Petrochemicals need advanced and specialised technologies to make high-value and varied products that can compete globally. But Iran struggles to acquire and develop such technologies because of sanctions, weak research and development (R&D), human-capital constraints and intellectual-property issues. As a result, Iran mostly makes basic and intermediate products with low value-added and margins.

•  Market. Petrochemicals depend heavily on exports, as the domestic market is limited and saturated. NPC says Iran exported 23m tonnes worth $11.5bn in the year to March 2021, or 35% of its non-oil exports. But Iran faces difficulties in reaching and expanding its export markets because of sanctions, geopolitical tensions, trade barriers, competition from other producers and changing consumer preferences.

The industry also has some opportunities to exploit. They include:

•  JCPOA. This is the nuclear deal signed in 2015 between Iran and six world powers (China, France, Germany, Russia, Britain and America), which lifted some sanctions on Iran in return for curbs on its nuclear activities. America quit the deal in 2018, but the other parties still uphold it. Recently they have been negotiating with Iran to revive the deal and bring America back into it. If successful, this could ease or remove some of the sanctions on Iran's petrochemicals and create more scope for trade, investment, technology transfer and co-operation.

•  Diversification. Petrochemicals could diversify their feedstock sources and products by using alternative inputs such as naphtha, liquefied petroleum gas (LPG), methanol and ethane. This could reduce their reliance on gas and increase their value-added and margins. They could also diversify their products by making more complex and sophisticated ones such as polymers, aromatics, olefins and derivatives. This could improve their competitiveness and market share.

•  Integration. Petrochemicals could benefit from integrating their upstream and downstream activities by linking different stages of production such as extraction, processing, distribution and consumption. This could enhance their efficiency, quality, profitability and sustainability. They could also integrate with other sectors such as oil, gas, power, steel, cement and agriculture by supplying them with inputs or using their outputs. This could create synergies, complementarities and spillover effects.

•  Innovation. Petrochemicals could foster innovation by investing more in R&D, human-capital development, technology acquisition and adaptation, knowledge creation and diffusion and entrepreneurship. This could boost their productivity, creativity, competitiveness and resilience. They could also innovate by adopting new business models such as circular economy, green chemistry, bio-based materials and digital transformation. This could raise their environmental performance, social responsibility and customer satisfaction.

Iran's petrochemicals are a vital sector that faces many challenges but also has many opportunities. To overcome the former and seize the latter, they need a comprehensive strategy that aligns with Iran's national interests and goals.

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