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Insight | Time: Jul 6 2020 4:46PM
Why is it difficult for Iranian PE cargo ships to land?
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There are many problems with Iranian goods in the past two years. For example, the establishment of Iranian L/C has always been difficult since 2019, and an Iranian LDPE container ship has collided with another cargo ship in Singapore in May, 2020. Also, in June, there are a number of Iranian cargo ships have difficulty in landing, all of which have a great impact on the market. Of course, this is mainly because China imports a large number of PE from Iran, and the degree of dependence on it is relatively high.

First of all, let's talk in detail about the current situation that it is difficult for Iranian ships to reach ports:

Whether it is the problem of opening a letter of credit in the previous two years or the current inability of cargo ships to land, it is mainly caused by US sanctions against Iran.

On June 8, OFAC (The Office of Foreign Assets Control of the US Department of the Treasury) has announced sanctions against the Islamic Republic of Iran Shipping Lines (IRISL) and its Shanghai-based subsidiary, E-Sail Shipping Company Ltd (E-Sail) have come into effect, including 121 ships owned or operated by the two companies, involving container ships and oil tankers. Under the influence of this sanctions, a large number of cargo ships loaded with plastic could not arrive at the port on time, involving voyages 1284E, 1285E, 1286E, 1287e, and so on. The above voyages have originally expected to arrive at the port on 30 May, 2020 at the earliest, but have postponed to after July 1, and the specific arrival date has not yet been determined, and the later voyages are more likely to be postponed. As a result, these ships have to circle or float at sea, waiting to land or other solutions. In late June, it’s heard that these ships would land one after another during the July 8-15.

At present, because of the frequent and large amount of trade between China and Iran (not just plastic), both countries will attach great importance to it, and it is only a matter of time before it is solved. Due to the delay of ships, the market is in short supply, and market price is relatively high.

Second, let's analyze the Iran's imports:

Iran has always been the second largest country of polyethylene imports in China, and the total amount of PE imported cargoes from Iran has also increased from 150-200kt in previous years to 200-300kt. However, since the overall import increase is more obvious, Iran's share of total imports has dropped slightly to 10-20%.

According to the incomplete statistics, the total production capacity of PE in Iran is about 5.4 million tons, of which LLDPE accounts for 13.83%, LDPE accounts for 30.47%, and HDPE accounts for 55.70%. Therefore, the import volume is also obvious, HDPE is the largest in number, followed by LDPE and LLLDE, whose proportion is also basically in line with the data of production capacity.

Finally, let’s talk about the subsequent PE CFR China market.

First of all, the overall supply of goods is relatively ample, and the imports in May (1.6464 million tons) hit a new high, indicating that the supply of goods is not tight and the downstream demand is relatively good.

However, the shipments of mainstream suppliers (such as Saudi Arabia, Iran, Qatar, Thailand, etc.) are not as concentrated as the previous period, and then offers have reduced. Due to the impact of the pandemic abroad from March to May, these mainstream suppliers have oversold in large quantities and at low prices. Most of them still deliver the orders of the previous stage. Therefore, when the supply of the mainstream supply declines in the late market, suppliers offers high and the whole market price moves higher.

At present, PE CFR China market price is higher than the domestic market, coupled with the problem of Iranian ships, the overseas market price is high and difficult to move lower in the short term. If these ships arrives, it may have an impact on the market within a certain period of time. However, there are two issues to be considered: 1. most of the supply of goods has been digested by downstream, with very little goods may actually reach the markets; 2. because of the vacancy of these goods, downstream has procured other cargoes to replenish stocks, and the subsequent purchase quantity will also be controlled.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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