Speed up capacity expansion
Limited growth of domestic demand and new capacity targeted at overseas market
Iran is located near the Persian Gulf in the Middle East, with rich oil and gas resources. Its proven crude oil reserves and natural gas reserves are 158 billion barrels and 1201 trillion cubic feet, respectively, ranking fourth and second in the world. Relying on the superior natural resources, Iran’s petrochemical industry is booming. The export of petrochemical products accounts for about one third of Iran’s trade exports, and has become one of its domestic pillar industries. It is precisely because of such oil and gas resources, Iran has a lot of gas head urea plant capacity.
According to Bloomberg data, from 2009 to 2015, Iran’s urea production capacity has been maintained at more than 4.5 million tons, during which there is no new capacity, mainly because of the slow investment in fixed assets in the post financial crisis era, which makes its urea production capacity unchanged. However, since 2016, nearly 8 million tons of urea production units have been put into operation in Iran, which has increased the domestic urea production capacity by 1.6 times to 12 million tons in 2016, which is in line with the period of large-scale production of olefin and methanol units in Iran in the same period, as well as the period of large-scale production of petrochemical units in other regions of the world, such as China and North America.
The relatively famous urea enterprises in Iran include Pardis Petrochemical Company, Shiraz Petrochemical Company, Raz ipechemical company, marvdasht Petrochemical Company and Khorasan petrochemical company. Among them, the urea production capacity owned by Pardis petrochemical company occupies the first place in Iran, with a capacity of more than 3 million tons. However, from the perspective of capacity utilization, in 2016, 2017 and 2018 after Iran’s urea production capacity was put into operation, the capacity utilization rate was relatively low, accounting for 33.2%, 40.5% and 54.9% respectively, which was quite different from the capacity utilization rate of more than 90% in 2013-2015. This is mainly because Iran is located in the Persian plateau and in the desert area, so the area of arable crops is relatively small, and the growth rate of domestic urea demand is limited.
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From the data point of view, the growth rate of domestic urea demand in Iran improved from 2015 to 2018, but the average growth rate of domestic urea demand in Iran from 2013 to 2018 was – 10.75%, which is difficult to digest more than 12 million tons of urea production capacity. As mentioned above, Iran is an important exporter of petrochemical products in the world. It is not hard to see that only exports of urea in Iran can digest the supply increase brought by new production capacity. According to Argus information, Iran still has more than 10 million tons of new production capacity increase targeting overseas export market in the future, including 1075000 tons of lordegan area fertilizer rcompany (originally planned to be put into production in 2019, now it may be In addition, three Zanjan industries Petrochemical Company, Hengam Petrochemical Company, masjed soleyman petrochemical company have plans to put into operation 1075000 tons of production capacity and Kermanshah company’s 6.6 million tons of production capacity respectively.
Less imports, mainly from India
As mentioned above, the high urea production capacity of Iran that does not match domestic demand can only be digested by exports, which is also true from the data. From the perspective of import data, Iran’s urea imports from 2013 to 2018 are relatively small, totaling less than 10000 tons. Of course, this part of the imports may be high-end urea. From the perspective of export data, Iran’s urea exports from 2013 to 2018 were 2.195 million tons, 1.29 million tons, 2.25 million tons, 1.88 million tons, 2.74 million tons and 4.2 million tons, far higher than the imports and even higher than domestic urea in Iran Demand, meanwhile, the overall export dependence rose to 52.2% in 2018 on a month on month basis. Therefore, we believe that Iran is a typical urea export-oriented country, and the current and future urea production capacity is only exported to overseas countries for digestion.
According to Argus, at present, the destination of Iran’s Urea Export is divided into four areas: first, India, which accounts for more than 50% of all exports in the past five years, is the main overseas destination of Iran’s urea supply; second, Turkey, Iraq, Afghanistan, Myanmar and other countries around Iran constitute the core area, which accounts for 20% – 30% of exports in the past five years; third, Germany, Belgium South Korea, Poland, South Africa and other countries constitute a non core area, with the export volume accounting for 10% – 20% in the past five years; fourth, the export volume of transit trade market with China as the transit station has gradually increased to about 20% in 2018, among which the United States withdrew from the Iran nuclear agreement and re increased the sanctions against Iran in 2018, and Iran urea can only be exported to China through transit and then exported to India through operation Market. The main reason for this situation is that the Indian government refuses to accept the Iranian urea supply in the domestic urea bidding procurement considering the relationship with the United States. However, it is reported that the total amount of Iranian urea re exported to China decreased by about 25% in 2019.
China’s high urea cost, Iran’s export channel blocked
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As Iran is an important urea export-oriented country, China is also an important part of the global urea export market. From 2014 to 2015, China’s urea exports exceeded 13 million tons and 14 million tons respectively, far exceeding Iran’s urea exports in the same period. This is mainly due to the serious oversupply of urea in China, which made upstream enterprises have to take the initiative to reduce the inventory pressure and export to the warehouse. Then in 2016-2018, China’s domestic urea industry experienced supply side reform, most of the urea plants with backward technology and great damage to environmental protection were eliminated, and the domestic urea price in China rose as a whole, which also made the export competitiveness of China’s urea price sharply reduced, among which the export volume of China’s urea in 2018 was less than 2.5 million tons, far lower than the export volume of more than 10 million tons.
On the contrary, Iran’s urea exports are in a fast growth period. From 2017 to 2018, the year-on-year growth rate of Iran’s urea reached 40% – 50%, and in 2018, Iran’s urea exports exceeded 4 million tons, higher than China’s urea exports in the same period. In terms of Urea Export, we believe that Iran urea and China urea are in a competitive relationship, especially in terms of exports to India. However, both countries are faced with their own problems in terms of exports, that is, China urea is not competitive in the international market due to its high cost, while Iran urea is blocked in export channels due to economic sanctions imposed by the United States.
Summary
Iran is rich in oil and gas resources and cheap, which provides a large cost dividend for many new urea plants in Iran. At present, Iran’s capacity has exceeded 12 million tons, and there may be a new capacity plan of nearly 10 million tons in the future. With such a large urea production capacity, Iran’s domestic demand cannot be digested, so it can only be digested by exporting to overseas markets. However, since 2018, the United States has withdrawn from the Iran nuclear agreement and continued to increase economic sanctions against Iran, which makes the domestic urea export of Iran difficult. Considering that Iran is a battleground for strategic interests of global powers, we believe that the issue of Iran’s Urea Export is full of uncertainty, which is a marginal variable factor that cannot be ignored in the global urea trade market and needs to be focused on.
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